It appears that Japan’s economy has emerged from a “soft patch” and entered a new period of moderate growth. In April through June, the nation’s gross domestic product expanded at an annual rate of 1.1 percent, the Cabinet Office announced last week. That marked the third consecutive quarter of positive growth.

Mr. Heizo Takenaka, the state minister in charge of economic and fiscal policy, said the economy “has pulled out of a stalled stage,” citing “improvements” in both the corporate and household sectors. The upbeat statement, coming ahead of a general election scheduled for next month, may have been prompted in part by political calculations, but there is little question that the economy as a whole is looking up.

Taking the lead role in the recovery is big business. In the 2004 fiscal year ended March 31, large publicly traded corporations chalked up record profits, and the trend so far remains basically strong. Major companies, having completed a round of layoffs and other restructurings, are plowing back more of their profits into capital investment and job creation.

The unemployment rate, which reached a peak of around 5.5 percent three years ago, has dropped to 4.2 percent. In addition, wage levels have risen significantly due largely to increases in twice-a-year bonuses. Nominal employee compensation (excluding effects of price changes) in the April-June quarter increased 1.8 percent from a year earlier.

Consumer spending, which accounts for nearly 60 percent of GDP, also expanded significantly, as it had done the previous quarter. One likely reason for this is a pickup in apparel sales due to the government-sponsored “Cool Biz” campaign urging employees to dress casually without suit and tie during the summer. The series of national holidays from late April to early May, as well as the Aichi Expo, also appear to have spurred spending.

Yet long-term problems abound. A case in point is the employment picture. Although the jobless rate is down overall, the rate for those aged 15 to 24 is nearly 8 percent; it had been above 10 percent until recently. There is now a new breed of youths called “NEET” (not in employment, education or training).

Fundamentally, this shows that employment is falling behind the economy in structural reform. Information-technology businesses and services, for example, are expected to pull the economy along as they hire more people, yet employment conditions in these sectors are anything but favorable. As the number of unionized workers continues to decline, employers are apparently in a better position to alter working conditions to suit their convenience.

Also worrisome is the profit picture. While large corporations are doing very well, small and midsize companies are generally left out of the loop. Only a limited number of companies, such as technology-strong firms, are running in the fast lane.

Meanwhile, many companies have moved production to China and other low-cost countries — moves that eventually will weaken the domestic industrial base. Some have relocated their head offices from Tokyo and other high-cost urban centers to localities where they have factories.

The economic recovery is uneven geographically as well. For example, the Nagoya region, home to the world-beating Toyota Motor Corp. and currently the site of the Aichi Expo, is thriving, with job offers outnumbering job applications. But regions in the countryside remain largely in the doldrums.

The household sector remains essentially weak, despite the surge in consumer spending. Although the average worker’s annual income has increased about 5 percent in the past 15 years, disposable income has climbed less than 1 percent. This shows that higher taxes and social-security contributions — including the value-added consumer levy, health-care and pension insurance — have put the squeeze on the household economy. With public finance in a state of near bankruptcy, the social-security burden on family budgets is bound to rise.

Deflation — the persistent fall in the prices of goods and services — is part of the reason that consumption has not dropped markedly. The main reason, however, is that consumers have drawn down their savings to make ends meet. In the same 15-year period, the savings rate fell from 15 percent to 7 percent. The government’s “zero-interest rate” policy has cut deeply into interest incomes from bank deposits, putting a heavy damper on household spending.

All in all, the latest GDP report is a sobering reminder that a genuine economic recovery, one that endures for a long period of time with domestic demand in the driver’s seat, is not yet assured. Achieving such long-term growth requires drastic efforts to stabilize employment and to reduce people’s public burdens through structural reforms.

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