Senior members of the ruling Liberal Democratic Party on Friday increased the pressure on Prime Minister Junichiro Koizumi to reload the public works budget, expressing doubts about the government's decision the previous day to upgrade its economic assessment.

"The U.S. economy is going increasingly out of order and there are many worrying factors concerning the prospects for the Japanese economy," Kabun Muto, a former director general of the Management and Coordination Agency, said during a meeting of the LDP General Council.

Muto said the government needs to take additional stimulus measures to "ensure a self-sustaining recovery" of the Japanese economy.

Taro Aso, chairman of the LDP's Policy Research Council, agreed with Muto and said he conveyed a similar request to government officials Thursday, but they gave "no response."

Members of the LDP General Council later agreed that Aso should talk to the government again to express the anxieties of the party and call for economic measures.

When he took power last year, Koizumi slowed the spending on pump-priming projects, which LDP governments used throughout the 1990s in vain attempts to stoke "self-sustaining recoveries." Koizumi has insisted that the government deal with its ballooning debt level, the highest of any developed country, and begin restructuring.

Since the beginning of the year, he has cited positive government reports on the economy in a bid to quiet his adversaries.

On Thursday, the Cabinet Office said in its monthly report on the state of the economy for July that although the economy remains in a difficult situation, "movements of an incipient recovery can be seen in some areas," upgrading the view for the first time in two months.

Confidence growing

Small and medium-size companies showed increasing confidence in the April-June period, marking the first upturn in four quarters, according to a Ministry of Economy, Trade and Industry survey released Friday.

But conditions surrounding smaller firms remain severe, according to a METI official, who added he will wait for another quarter before determining whether this latest improvement indicates a broader recovery.

The diffusion index, which measures the percentage gap between companies that saw business improve from a year earlier against those that saw conditions worsen, rose 7.5 points to minus 42.5.

By industrial category, the index on manufacturers gained 9 points to minus 42.2, thanks to their relative reliance on exports, while the index on the domestic demand-oriented construction industry rose only 2.9 points to minus 44.

The index on wholesalers climbed 10.4 points to minus 41.7, retailers were up 8.2 points to minus 45.7, and the service industry rose 5.8 points to minus 35.5, METI said.

The official attributed the better showings in part to expectations that the new fiscal year would be better for business.