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The economy could be treading a recovery path with rising stock prices, Minister of Economy, Trade and Industry Masayuki Naoshima said Tuesday, but he warned the government must offer more support to struggling small businesses to bolster the chances for an upturn.

“I think that is a good sign . . . and indicates investors are seeing Japan’s economic outlook as bright,” Naoshima said at his first news conference of the year, referring to recent rises in Tokyo stock prices.

The benchmark 225-issue Nikkei average ended higher on the first and second days of trading in the new year. On Tuesday, the index closed up 0.25 percent at 10,681.83, the highest point since early October 2008.

“We think (stock prices) have been at good levels. If we pass the fiscal yearend (in March) without significant problems, then it is highly likely the Japanese economy will get back on a recovery track,” said Naoshima, speaking before Tuesday’s session closed.

It is rare for a Cabinet member to clearly comment on stock price levels.

But Naoshima also noted the difficulty smaller businesses are facing, saying sentiment on the “front lines” remains weak.

The economy will enter a crucial phase between January and March, he said, expressing concern over possibly tighter funding conditions for smaller businesses as banks close their books for fiscal 2009.

Naoshima said the government will make every effort to ensure such firms don’t face financing troubles during the fiscal yearend, including additional measures to offer government compensation for loans as well as the expansion of existing relief programs.

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