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. Last Updated: 07/27/2016

'Worst Is Over' for Japanese Economy

TOKYO -- The worst is over for Japan's troubled economy but business conditions remained severe and more government spending is needed to seal the recovery, the country's top two economic ministers said Tuesday.

Finance Minister Kiichi Miyazawa, speaking after a Cabinet reshuffle in which he retained his post, said more fiscal spending was needed to support the economy.

Although he cited concerns that falling personal incomes would stifle consumer spending, he said the economy had improved compared with a year ago and was unlikely to fall back.

"Since consumption and capital spending have not recovered, it is necessary for the government for the time being to support the economy through fiscal measures," he said.

Earlier he told reporters that the "worst was over" and the economy was expected to improve.

Economic Planning Minister Taichi Sakaiya, who also retained his post, reinforced Miyazawa's message and said the economy needed another push or two from government stimulus measures.

Sakaiya has in the past called for a supplementary budget for this fiscal year with direct fiscal spending of 4 trillion to 5 trillion yen ($38 billion to $47 billion), and the government is planning another stimulative initial budget for the year starting next April.

Both Miyazawa and Sakaiya, considered key architects of Japan's economic policy, offered caution over the biggest rise in business sentiment recorded in 12 years in the central bank's "tankan" survey, released Monday.

Miyazawa said so far there were no signs of improvement in corporate capital spending and personal incomes, while Sakaiya said the economic situation was tough despite the tankan.

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 favorable business conditions minus those reporting unfavorable conditions. 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.

"These two [personal income and capex] are the factors that would support economic recovery," he said.

Asked his view on prospects for monetary policy after the better tankan result, Sakaiya said the Bank of Japan also believes the economy remains in a severe condition.

The BOJ has been under intense pressure to ease policy to restrain the yen after the currency's 15 percent 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 at around 105 yen to 106 yen to the dollar. Sakaiya said if the currency stayed around that level there would be no need for intervention.

The yen was at the weaker end of that band Tuesday, trading at 106.55/60 to the dollar on expectations the U.S. Federal Reserve will leave rates steady at its Federal Open Market Committee meeting Tuesday.