The Japanese government upgraded its economic outlook for the nation but noted that the current recovery stage is still not self-sustaining, according to a monthly report released by the Cabinet Office on Friday.

The report for June states that, "Although the economy has been picking up steadily and the foundation for a self-sustaining recovery is being laid, it remains in a difficult situation such as a high unemployment rate."

Analysts noted that the Cabinet Office has not made reference to the word "recovery" in almost two years.

Corporate capital spending, a key economic indicator, is " leveling off," the Cabinet Office said, upgrading its previous assessment of business expenditure, which it described as, " starting to level off."

Regarding consumption, the report for June revealed that consumer sentiment was improving and government stimulus measures were starting to provide tangible results, although the official assessment remained unchanged.

Consumption is "picking up," the Cabinet Office said, with consumer sentiment showing signs of improvement and is expected to hold steady on the back of the government's monthly child benefits, which started in June.

The government highlighted the fact that exports are increasing moderately and industrial production on an upward trend, however the Cabinet Office said that, "Recent price movements show that the Japanese economy is in a mild deflationary phase."

Added to this, other components such as housing construction was downgraded for the first time in a year and public investment for the first time in two-months, the report showed.

Labor conditions remain "severe," the government stated, but " movements of an incipient recovery can be seen recently."

In addition, business sentiment, according to the Cabinet Office, is "improving" although smaller companies are "cautious about the immediate future," the report said.