The Japanese government upgraded its view of the economy yesterday in a bullish report that contrasted with the political uncertainty generated by this week's dissolution of parliament.

Separately, the Bank of Japan (BoJ) also said the economy was gathering strength, while strong machinery orders for June released yesterday reinforced the positive tone.

In a monthly report, the cabinet office said the economy was "recovering at a moderate pace with both the corporate and household sectors improving".

This showed greater optimism than last month's assessment that the economy was "showing signs of shaking off weakness".

The government's markedly rosier view reflects a clear improvement in economic data over the past few months.

Most notably, unemployment has fallen to a seven-year low of 4.2 per cent, while wage growth has accelerated, and the number of people with permanent full-time jobs has also risen.

Kenji Umetani, director of economic analysis at the cabinet office, told journalists: "We can say the economy is emerging from a soft patch."

Yesterday's parallel BoJ monthly report added to the economic optimism. "Japan's economy continues to recover, with the progress of adjustments in information technology-related sectors," the central bank said.

Private sector machinery orders, excluding shipbuilding and electric power, jumped 11 per cent in June from a month earlier, the government said.

Richard Jerram, economist at Macquarie Bank, said the statistics were highly volatile, but this "does not disguise the fact that machinery orders are showing a solid improvement".

Mr Jerram added: "Most of the recovery over the past three years has been concentrated in the manufacturing sector, but there are some signs that the non-manufacturing side is starting to improve as well."

The positive economic news boosted the Nikkei 225 index, which closed up 1.03 per cent at 11,900.32, and lifted the yen about a quarter per cent higher.