Japan's government maintained its overall view that the economy remained weak in the aftermath of the March earthquake, but downgraded its assessment of capital spending in a monthly report published on Tuesday.

The government cited supply constraints as the reason behind the first cut in its view on capital expenditure since December 2009, saying it was no longer picking up but has weakened recently.

The report also highlighted risks to economic recovery stemming from possible power supply shortages, slow rebuilding of supplier networks and high oil prices.

Japan's economic growth is expected to slow to 0.6-0.7 percent this fiscal year, Economics Minister Kaoru Yosano said, clarifying a more upbeat sounding forecast he made last week although he is still more optimistic than most analysts.

Yosano signaled that government's official forecasts may further err on the side of caution, noting that many economists had cut their forecasts by 0.5 percentage points after last week's data showed a surprisingly deep economic contraction in the January-March quarter.

The government will release revised official growth forecasts in late June or July. It currently projects 1.5 percent growth for the financial year ending in March.

Yosano said it would take time for supply chains, particularly those of automakers, to be fully restored while power supply constraints and deterioration in consumer and business confidence were also hurting the economy after the triple blow of the March earthquake, tsunami and a nuclear crisis.

The disasters nudged the economy into a second quarter of economic contraction, technically putting Japan in a recession, although the government will make its own determination later as to whether it considers the economy as being in recession.

Some economists say the surprisingly weak first-quarter figures increase the risk that the pace of recovery from the third quarter will be slower than anticipated.

The Bank of Japan last month cut its growth forecast for the current fiscal year to 0.6 percent from 1.6 percent predicted three months ago, but has maintained that the economy is likely to resume growing in the second half of the year.

Japan's economy grew 2.3 percent in the fiscal year that ended in March.

(Editing by Tomasz Janowski and Edwina Gibbs)

Japan