Although he cited concerns that falling personal incomes would stifle consumer spending, he said the economy had improved compared with a year ago and was unlikely to fall back. "Since consumption and capital spending have not recovered,it is necessary for the government for the time being to support the economy through fiscal measures," he said. Earlier he told reporters that the "worst was over" and the economy was expected to improve.

Economic Planning Minister Taichi Sakaiya, who also retained his post, reinforced Miyazawa's message and said the economy needed another push or two from government stimulus measures.

"If the government does not give another one or two pushes,the Japanese economy won'T recover," he said after the reshuffle. Miyazawa will hold a news conference at 1100 GMT and Sakaiya will speak to reporters with Prime Minister Keizo Obuchi at 1230 GMT in customary briefings following the new cabinet appointments announced earlier on Tuesday.

Sakaiya has in the past called for a supplementary budget for this fiscal year with direct fiscal spending of four to five trillion yen ($38-47 billion), and the government is planning another stimulative initial budget for the year starting next April. Both Miyazawa and Sakaiya, considered key architects of Japan's economic policy, offered caution over the biggest rise in business sentiment recorded in 12 years in the central bank's "tankan" survey, released on Monday. Miyazawa said so far there were no signs of improvement incorporate capital spending and personal incomes, while Sakaiya said the economic situation was tough.