The state budget for fiscal 2001 to be drawn up by the government later this month is expected to be characterized by "guarded optimism," Finance Minister Kiichi Miyazawa said Wednesday.

The government should compose the regular budget for the next fiscal year "with due consideration attached to uncertainties" over the nation's economy, Miyazawa, the Cabinet's returning finance minister, said in an interview.

Political observers are interpreting Miyazawa's guarded optimism as a sign that he intends to push for a neutral budget instead of another typical pump-priming package, meaning that it will feature fiscal provisions to improve employment and private consumption, which remain stagnant.

"The corporate sector has largely regained its strength after the tremendous amounts of time and effort expended by the government," Miyazawa said. "But we are now concerned that we might be experiencing a different pattern of recovery, in which a corporate recovery does not spread to employment or household spending as fast as before."

The Economic Planning Agency announced earlier this week that the economy puttered along at a slow pace during the July-September quarter, with gross domestic product expanding a seasonally adjusted 0.2 percent.

Government investment fell and consumer spending remained unchanged, fueling worries that the pendulum may be about to swing back on Japan's fragile economic recovery as the effects of public works spending fade.

In light of these circumstances, Miyazawa did not rule out the possibility of earmarking yet another controversial reserve fund for unspecified public projects. Such a reserve would be the third of its kind since the fiscal 1999 budget -- a step that may ensure recovery but go against government efforts to dump public works projects.

Asked about the possibility of allocating a reserve fund for unspecified public works projects, Miyazawa said his ministry would fully consult with the ruling coalition before deciding whether to take such steps.

In the fiscal 1999 and 2000 budgets, the ministry earmarked 500 billion yen for the extra fund in the name of economic recovery.

The measures, which have only managed to help the economy mark time, attracted public criticism that the extra fund was only being used as a means to settle political strife among lawmakers representing the special interests of particular industries.

"It is necessary for us to analyze more economic indicators before taking any steps, such as the 'tankan' (the Bank of Japan's quarterly business sentiment survey) and other related figures," Miyazawa said.

Regarding government efforts to repair the nation's debt-ridden treasury, Miyazawa said the government should begin preparations to tackle the problem after the planned realignment of government ministries and agencies takes place on Jan. 6.

"Implementing fiscal reforms will involve various fields, such as tax, social security and relations between central and local governments," Miyazawa said. "We must develop a formula that can bring answers to all these questions."

Specifically, Miyazawa said improving the nation's fiscal condition will consequently lead to "balancing benefits and obligations" in public services systems, adding that the public must be ready to debate the matter.

"Carrying out far-reaching fiscal reforms is a very ambitious attempt that can be made only once or twice over a century," Miyazawa said. "So we should begin preparations for this challenge at the start of the 21st century."

Nonetheless, Miyazawa was ambiguous about when exactly the government will take specific steps to constrain expenditures and the steady flow of government bond issues. But the government, he said, will be making projections next year on the future of the nation's fiscal reforms.

Under the state budget for the current fiscal year, including the extra budget, government bond issues will total 34.6 trillion yen, accounting for 38.5 percent of state revenue. The total debt of the central and local governments will come to 642 trillion yen at the end of March.

In pursuing fiscal reform, Miyazawa underlined the significance of having former Prime Minister Ryutaro Hashimoto in the new Cabinet as state minister in charge of administrative reform, which was one of Hashimoto's top -- albeit unpopular -- policy priorities during his term as prime minister.

"I believe he (Hashimoto) has the capacity to grasp various problems that may arise as we pursue fiscal reforms," Miyazawa said. "We will tackle the problems in collaboration, because they are huge and will take a lot of time to solve."