FILE PHOTO: People walk at a shopping area of Shinjuku in Tokyo, Japan, September 11, 2025. REUTERS/Fabrizio Bensch/File Photo

By Satoshi Sugiyama

TOKYO (Reuters) -Japan's government said consumer sentiment on the economy was recovering despite persistent inflation in a monthly report published on Wednesday.

In its monthly economic assessment, the government reiterated a cautiously optimistic view that the world's fourth-largest economy is recovering moderately, while warning of downside risks from U.S. trade policies.

"Consumer sentiment itself sank around April when talks of (U.S.) tariffs began, but since then it has been recovering and that recovery is continuing now," a Cabinet Office official said.

The government kept its view on private consumption, which accounts for more than half of the economy, saying it showed signs of "picking up" for a third consecutive month.

Elsewhere in the report, the government downgraded its assessment on imports. It also revised its view on domestic corporate prices to "rising moderately" from "flat".

Japan's economy marked its first contraction in six quarters for the July-September period, though economists say that was largely due to special factors and that underlying private demand remained firm.

The report comes days after Prime Minister Sanae Takaichi's cabinet approved a 21.3 trillion yen ($135.8 billion) economic stimulus package, including general account outlays of 17.7 trillion yen representing the largest stimulus since the COVID pandemic.

($1 = 156.8200 yen)

(Reporting by Satoshi Sugiyama; Editing by Lincoln Feast)