Japan's government retained its view that the economy is recovering at a moderate pace, while saying that weakness continued to centre on exports, according to a monthly economic report for July released by the Cabinet Office on Tuesday.

Risks to the outlook posed by lacklustre overseas demand could add to pressure on the government to boost spending in order to counter a potential blow to demand from a scheduled sales tax hike in October. On the positive side, the government lifted its assessment of industrial output for the first time in more than a year-and-a-half, raising it to flat from weak.

The improvement stemmed mainly from strength in car production and construction machinery, an official said, adding the government remained cautious over the outlook for industry.