The economy is on a recovery path backed by firm domestic demand, the government said Wednesday, keeping its bullish assessment intact from the previous month.

"The economy is recovering," the Cabinet Office said in a monthly report for March, citing a pickup in production and rising corporate capital investment.

The government had upgraded its overall economic assessment in its February report by dropping the phrase "at a moderate pace" used in its January report.

The March report says private consumption is "increasing moderately" backed by improvement in consumer sentiment and a gradual increase in wages.

Capital investment is also increasing and it is likely to continue to do so, reflecting expected high corporate profits, the report says.

Industrial production is "increasing moderately," though inventory adjustments are seen in some sectors, it notes.

An official at the Cabinet Office said inventories are piling up a bit in the electronic parts and devices sector, but they are unlikely to pose any threat to the economic recovery trend.

Exports to the rest of Asia and the United States are growing moderately, while those to the euro zone economies stayed flat, the report says, adding imports remained flat from all three regions.

"The employment situation is improving on a broader basis, though some severe aspects remain," it says.