That could be Japan's theme song these days, as many analysts predict Tokyo will have to keep the public spending taps open and close its eyes to a bulging budget deficit if the nation is to achieve anything other than an illusive recovery.

"I suspect that whatever recovery we see will be fairly feeble and a fiscal tightening at that point would certainly not be recommended," said Peter Morgan, economist at HSBC Securities.

Japan's economy contracted for an unprecedented fourth quarter in the July-September quarter, with gross domestic product (GDP) shrinking by a real 0.7 per cent from the previous quarter.

That was the same as an annualised 2.6 per cent fall and was a tad worse than the average 2.4 per cent annualised decline forecast by economists polled by Reuters.

Economic planning agency minister Taichi Sakaiya told reporters it would be tough to hit the government's forecast of a 1.8 per cent shrinkage in GDP in the year to March 1999, andsome economists said a fall of about 2.5 per cent was likely.

Japanese authorities have pledged to stem the decline and bring back positive growth next year, and have crafted a mammoth 24 trillion yen stimulus package to achieve those goals.

The latest package, announced last month, follows a 16 trillion yen package unveiled in April and makes the eighth in a series, bringing to more than 100 trillion yen the amount Japan has set aside since 1992 in search of real recovery.

Public spending and a credit easing in fiscal 1995 helped the economy grow 2.8 per cent that year, and improved private spending then led to a 3.2 per cent rise the following year.

That recovery, however, evaporated a year later after the government -- worried about its ballooning budget deficit -- turned off the fiscal tap before the private sector was fully back on its feet.

"The government contribution to growth was actually minus in fiscal 1996 and even without the rush of spending before the (April 1997) consumption taxrise, growth would probably have been about 2 per cent. But before a real recovery had been achieved, they tightened their fiscal stance," said Mamoru Yamazaki, a senior economist at Paribas Capital Markets.

Japan's private sector looks far from ready to pick up any slack resulting from a withdrawal of the public spending prop.

Manufacturers say they plan to slash spending on plant and equipment by 13.9 per cent in the business year from April 1999 after a 5 per cent drop in the current year, according to a government survey released on Wednesday.

"There is a big risk that without additional support next fiscal year, the recovery will falter," Paribas's Yamazaki said. "Further fiscal stimulus is inevitable to avoid minus growth."

Japan's budget deficit, however, is already ballooning -- a key factor behind the decision by Moody's Investors Service last month to downgrade the nation's credit ratings.

A finance ministry official said on Wednesday that Japan was set to suffer a general governmentfiscal deficit of 9.8 per cent of GDP this business year -- higher than Brazil's 7 per cent.

Gross government debt is estimated at 111 per cent of GDP this year, a worse score than all Group of Seven members except Italy.

And while Italy's gross debt is forecast to fall to 116 per cent in 1999 from 118.5 per cent this year, Japan's debt is likely to grow at what the official termed "an alarming pace".

"Fiscal policy is starting to be up against its limits because of debt restraints," said one foreign economist.

Some economists believe Japanese authorities, while not happy with the bulging deficit, have thrown to the wind the commitment to fiscal rectitude which prompted last year's raising of the consumption tax to 5 per cent from 3 per cent.

"They seem to have decisively ended the teetering on the brink between trying to stop the deficit from blowing out and trying to help the economy," said Chris Calderwood, chief economist at Jardine Fleming Securities. "Now they've said `Sod the budget, we'llblow the deficit wide out.'"

Others are not so sure. "I think it (the finance ministry) is getting slightly tighter and tighter after the Moody's downgrading... I'm still very cautious on public spending," said Kazuhiko Ogata, a senior economist at ABN Amro.

Some economists, meanwhile, warn that a false sense of security born of the belief public spending is helping the economy to bottom out could derail painful but vital restructuring.

"I'm afraid people will say it has bottomed out like in '96, the crisis is past and the pressure for change will diminish. Then once the fiscal stimulus wanes, we're back to square one," said Ron Bevacqua, an economist at Merrill Lynch in Tokyo.