BRUSSELS -- Viewed from Europe, there are some signs that the Japanese economy might be starting to emerge from its 10-year slumber, but it remains essential that Tokyo focus on far-reaching structural reforms and antideflation measures rather than short-term policy lurches if the economy is to avoid another tailspin.

Some of the most recent reports on the economy have been encouraging -- for example the spring "tankan" report from the central bank showed the key diffusion index of business confidence was unchanged from December after declining over the previous four quarters. Economists also cite the recent inventory adjustment and the rise in stock prices as reasons to be more confident than at any time in recent memory.

But European observers and officials believe there is a danger that a shallow recovery could mask the pivotal problem that the economy faces -- deflation.