TOKYO Business sentiment in Japan is picking up in July on easing supply constraints and the removal of COVID-19 curbs, the first such uptick this year, a report by the cabinet said on Wednesday.

The monthly report also said the government still believed the economy was "recovering moderately", as consumer spending, capital expenditure and exports remained firm.

"Firms' judgement on current business condition is picking up," said the economic report for July issued by the Cabinet Office.

The last time the cabinet raised its view on businesses was December last year. Previously, the government had said the business mood showed signs of recovery.

The more positive business mood was in line with a Bank of Japan survey, which showed that big manufacturers' business sentiment improved for the first time in seven quarters in the June quarter, as raw material costs peaked and the removal of pandemic curbs lifted consumption.

However, tighter global monetary policies, higher prices and financial market volatility are risks to the recovery, the report said.

Private consumption, which makes up more than half the economy, was "picking up", the report showed, with sales of new cars growing as supply bottlenecks eased and service spending such as dining out increasing.

The Cabinet Office kept its view that capital spending was "picking up" and exports remained solid in July.

The report comes after the government last week issued a mid-year review of its economic forecasts, which showed the economy to expand 1.3% in the current fiscal year ending in March 2024, down from 1.5% projected in January.

(Reporting by Kaori Kaneko; editing by Miral Fahmy)