Official figures released earlier this month gave a conflicting picture of the prospects for economic recovery.

A quarterly Finance Ministry survey showed that nonfinancial companies posted a 41.8 percent year-on-year surge in pretax profits in the final quarter of 1999, the steepest gain in 20 years.

Sales rose 2.2 percent over a year earlier, the first increase in 2 1/2 years.

In contrast, a separate survey showed a 1.4 percent drop in gross domestic product in October-December, after allowing for inflation.

The second consecutive quarterly fall translated into a 5.5 percent plunge at an annual rate.

While fiscal spending tapered off, consumer spending was held in check, holding down economic expansion.

Government spending on public works projects plunged 5.4 percent from the previous quarter, consumer spending fell 1.6 percent and housing investment fell 5.8 percent.

As part of restructuring programs, many firms have cut jobs and slashed personnel and overhead expenses.

Against this backdrop, consumers remain nervous about the months ahead. They are holding back amid worries about job security and falling income.

Still, there was one bright spot — growth in corporate fixed investment.

The rising capital investment may help bolster the economy, but a strong recovery appears unlikely in the near term.

Until both consumer and fixed investment begin to pickup strongly, any recovery is likely to remain tenuous and could be stalled for some time.

Capital investment accounts for some 16 percent of GDP and consumer spending for two-thirds of overall economic activity.

Apparently disheartened by the economic slowdown, the government declined to declare at a March 17 Cabinet meeting that the economy had entered recovery.

Teizo Taya, a member of the Bank of Japan’s Policy Board, has indicated that the key interest rate will be held effectively at zero as long as consumer spending remains sluggish.

If this is the case, there may be no shift in the BOJ’s ultraeasy monetary policy until a pickup in consumer spending becomes discernible, probably in summer.

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