Japan's top economic planner said yesterday Tokyo could revise up its growth forecast for this year as the economy slowly emerges from its worst recession in 50 years although business conditions remained severe.
After a cabinet reshuffle in which he retained his key post, the economic planning agency minister, Mr Taichi Sakaiya, said the government needed to pour more money into the economy to keep the recovery on track.
His comments follow new signs of life in Japan's economy after a key survey released on Monday showed the strongest rise in business sentiment in 12 years for the September quarter.
But despite the optimism, Mr Sakaiya and other officials voiced caution about Japan's prospects following its worst post-war downturn and the Prime Minister, Mr Keizo Obuchi, warned against the harmful impact of a volatile yen.
Earlier, Mr Obuchi announced a major cabinet reshuffle in which key finance officials such as Mr Sakaiya and finance minister Mr Kiichi Miyazawa held their posts.
Earlier yesterday, Mr Miyazawa warned that falling personal incomes in Japan could stifle consumer spending, although he added the "worst was over" for the economy. Mr Sakaiya said it could grow faster than the government's current forecast of 0.5 per cent growth for the year to March 2000, but it needed another push or two from government stimulus measures.
Mr Takashi Fukaya, who took over as trade minister, used his inaugural press briefing to warn it was dangerous to consider Japan's economy back on track just because of two successive quarters of gross domestic product growth.
"The GDP has shown two successive quarters of positive growth, but there are still problems in the areas of consumption and private sector capital spending. It's dangerous to think we are out of the woods," he said.
Mr Sakaiya repeated his call for a supplementary budget for this fiscal year with direct fiscal spending of four to five trillion yen (€35E43.8 billion).
Both Mr Miyazawa and Mr Sakaiya, considered key architects of Japan's economic policy, were cautious about a jump in business sentiment recorded by the central bank's Tankan survey, released on Monday. Mr Miyazawa said so far there were no signs of improvement in corporate capital spending and personal incomes, while Mr Sakaiya said the economic situation was tough.
The quarterly Tankan's sentiment index for major manufacturers rose for the third straight quarter to minus 22. The Tankan index represents the percentage of firms reporting favourable business conditions minus those reporting unfavourable conditions. Mr Miyazawa noted that it remained in the minus column.
He said corporate capital spending was worse in all sectors, from major firms to small ones. It was the survey's worst report on capital spending since the Tankan began in 1983. Asked for his view on prospects for monetary policy after the better Tankan result, Mr Sakaiya said the Bank of Japan also believed the economy remains in a severe condition. The bank has been under intense pressure to ease policy to restrain the yen after the currency's 15 per cent leap against the dollar over the summer, but the central bank has not budged.
The yen's rise, however, appears to have stalled in the past week, with the currency hovering around 105 to 106 yen to the dollar. Mr Sakaiya said if the currency stayed around that level there would be no need for intervention.
