The government on Monday maintained its view that the Japanese economy is "recovering at a moderate pace," but warned of risks from the conflict in the Middle East.
The Cabinet Office kept the same assessment for the sixth straight month. It retained its views on most of the key components of the economy, from private consumption and capital expenditure to exports.
But the monthly report said companies view their business conditions as "recovering moderately as a whole," the first upgrade in three months. Public investment was downgraded for the first time since last November.
The government expects the economy to see a moderate recovery in the short term, but pointed to downside risks from aggressive monetary tightening in overseas economies and a slowdown in China, the Asian powerhouse.
"Full attention should be given to price increases, the situation in the Middle East and fluctuations in the financial and capital markets," the October report said.
The yen has broken past the psychologically important 150 threshold relative to the U.S. dollar, keeping financial markets on edge over whether Japanese authorities will step into the currency market to slow its decline.
Private consumption and business investment are "picking up," and exports are showing "signs of picking up recently," the government said.
Strong overseas demand has helped the Japanese economy achieve strong growth in recent quarters. Spending by consumers and firms -- key drivers of domestic demand -- has remained resilient despite accelerating inflation, driven by higher prices of energy and raw materials along with a weaker yen.
The report, released before the government finalizes an economic package on Thursday to support households hit by rising prices, said consumer prices are "rising," unchanged from its September assessment.
The Cabinet Office maintained its view on the global economy, saying it is "picking up despite weakness in some regions."