In its report on the economy for May, the agency said the pace of the country's economic deterioration is "slowing to a halt," which is the same assessment the agency made last month.

"Overall, the situation didn't worsen or improve, so we didn't change our overall assessment of the economy," said Takashi Omori, director of the national economic division at the EPA's research bureau.

Spending by consumers has dropped off as corporate Japan restructures itself. The push by Japanese companies to streamline operations and improve profitability has resulted in job cuts and reduced wages."The employment situation is gettingworse," Mr. Omori said. Japan's jobless rate soared to a record high of 4.8 per cent in March. Separately, the Bank of Japan said that lending by Japanese banks dropped 5.2 per cent in April from a year ago. April's contraction was much larger than the 3.9 per cent fall in March.

A Bank of Japan official said the 5.2 per cent fall in April was the worst on record, surpassing December's 4.7 per cent decline. Outstanding loans by Japanese banks stood at 488.68 trillion yen in the latest month, according to the central bank. Banks' efforts at the end of the fiscal year to improve their balance sheets by securitizing loans and writing off nonperforming loans led to the drop in lending, the Bank of Japan said. However, when adjusted for such seasonal and special factors lending was only down 0.8 per cent, compared with a 1.1 per cent slide in March.

"The pace of the drop in lending by banks has been effectively slowing down," the official said, adding that the adjusted fall has narrowed after reaching 1.5 percent in December 1998.

Japanese banks' liquidity and capital concerns have eased due to the central bank's loose monetary policy and the government's injection of public funds to shore up banks' capital bases, the official said. Meanwhile, Finance Minister Kiichi Miyazawa said that the government will seek to compile industrial competitiveness measures by the middle of June.