The staggering nature of Japan’s recovery was reflected Monday by the latest gross domestic product report, which showed that the economy grew 1 percent during the April-June quarter.

It was the second straight quarter of growth, following a 2.5 percent surge from January to March, according to the Economic Planning Agency.

The latest number translates into 4.2 percent growth over four quarters.

In real terms, total GDP for the period came to an annualized 491.44 trillion yen, compared with an annualized 486.40 trillion yen in the January-March quarter.

GDP measures the total value of goods and services produced at home.

The fiscal first quarter showing was in line with forecasts by many private economists, who had projected the key economic indicator would confirm gains in the nation’s economy but not a self-sustaining recovery.

The report shows consumer activity — the one sector most often blamed for the economy’s inability to begin feeding off itself — grew 1.1 percent in the April-June quarter, following a 1.7 percent rise in the previous quarter.

The overall number was boosted 0.2 percentage point by rising spending in nursing-care facilities, following the installation of a new insurance scheme in April.

But corporate spending on new equipment — which had been making up for consumers’ unwillingness to spend — slumped 3.3 percent.

It had logged 4.8 percent growth the previous quarter.

Meanwhile, government spending on public works continued to lead the way, logging a whopping 13.6 percent increase from the previous quarter — a record climb since the April-June quarter of 1974.

“The main driver of growth was public works, contributing 0.9 percentage points to the 1 percent,” said Nomura Research Institute senior economist Kiichi Murashima.

EPA chief Taichi Sakaiya noted consumer spending and corporate investment have yet to assume their roles as main economic drivers.

An extra budget to keep the economy from contracting is necessary, he said.

He also maintained that a “backlash” and statistical reasons accounted for the magnitude of the corporate spending and public works figures, and said continued caution about public works spending and overall economic conditions is needed.

Sakaiya compared the recovery to a relay race, personifying public works spending as the first runner and consumer demand as the second.

“The (second runner) has his hand on the baton,” he said, “but if (the first runner) lets go, it would fall.”

Government officials have said they will weigh the latest GDP report while deciding how much public money to dump into an extra budget for the fiscal year.

But Yasunari Ueno, chief market economist at Fuji Securities Co., said the figures did not provide a definitive guide on what the scale of the extra budget should be and cautioned against spending based on short-term analysis and needs.

“How the numbers should be interpreted needs to be debated,” Ueno said. “The numbers can be seen as a sign that steam is running out from the effect of public works or as indications of budding private-sector demand.”

The government has spent more than 100 trillion yen in less than a decade trying to kick-start the economy through public works.

Ueno went on to say that while people have more money in their pockets, they feel insecure about their long-term economic prospects.

“Earnings are strong,” he said, “but this is not felt in households, which are still burdened by housing loan repayments.”

Makoto Ishikawa, an economist at Japan Research Institute, said that a recovery is still ahead and that he sees signs of improvement in both the consumer and corporate outlooks.

“The consumer outlook is beginning to get back on its feet, with companies lowering prices and developing new products,” he said. “Meanwhile, we continue to see large demand for machinery orders and strong investment in information technology.”

With growth continuing after the GDP grew a revised 2.5 percent in real terms in the previous quarter, the government’s uninspiring target of 1 percent growth for fiscal 2000 appears to be within reach, officials said.

According to the EPA, the goal can be met even if the economy shrinks by 0.5 percent during each of the remaining three quarters.

Finance Minister Kiichi Miyazawa said the 1 percent growth in real-term gross domestic product for the April-June quarter was within his expectations but suggested that private demand has not been strong enough to lead the economy.

“Although plus figures had been expected for the latest quarter, I wish private demand had lasting strength,” Miyazawa said.

Despite the relatively strong consumer spending figure for the April-June quarter, housing spending decreased 0.8 percent.

Miyazawa brushed aside concerns about the decrease in corporate investment and instead highlighted the growth in that sector during the previous quarter.

As for the expected supplementary budget, Miyazawa avoided comments on specific figures, saying he will seek a consensus within the government and the Liberal Democratic Party.

Shizuka Kamei, chairman of the LDP’s Policy Research Council, has urged the government to spend more than 10 trillion yen, including around 5 trillion yen in direct fiscal stimulus.

Miyazawa said the stimulus should focus on “projects that are meaningful for the economy in the 21st century,” such as those related to information technology.

The finance minister also said the notion of issuing government bonds whenever they are necessary to finance stimulative measures should gradually change.

Imai touts 2.7 billion yen

Takashi Imai, chairman of the Japan Federation of Economic Organizations (Keidanren), called on the government Monday to compile a supplementary budget of up to 2.7 trillion yen to put Japan’s economy on a recovery path.

Commenting on the growth of Japan’s gross domestic product during the April-June quarter, Imai said the government needs to take fiscal and monetary policies to support the private sector.

“The economic growth during the period was achieved mainly due to public works spending,” Imai said. “When public works investments decrease in following quarters, Japan’s economic growth (in fiscal 2001) depends on private-sector spending.”

Although private consumption rose 1.1 percent from the January-March period for the second consecutive quarter, companies are concerned about whether it will continue, he said.

Imai also urged the Bank of Japan to maintain its ultraeasy monetary policy to continue the smooth economic recovery. Last month, the central bank ended its “zero-interest-rate” policy, which guided the unsecured overnight money rate to as near zero as possible, setting it at 0.25 percent.

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