Japan is set to slip back into recession - albeit temporarily - but confidence remains high that the economy will bounce back.

The country's chief economic planner has admitted that he expects a "considerably large negative figure" when gross domestic product for the October-December quarter is announced early next month.

That would be the second consecutive quarterly contraction in the economy, which shrank 1% in the July-September quarter, which would mean the country was technically back in recession.

However, Taichi Sakaiya said he was confident Japan would achieve the 0.6% growth that the government has forecast for the year ending 31 March.

Economists agree with his prediction, saying that despite the setback, the Japanese economy is still on course to grow on an annual basis for the first time in three years.

"There have been any number of private forecasts already published showing a negative forecast, so I wouldn't say it's a big surprise," said Peter Morgan, economist at HSBC Securities (Japan).

"The key question is what happens in the (current) quarter, and so far I think the evidence is recently good."

Mr Morgan cited rising sales of personal computers as a sign that weak consumer spending - the heaviest drag on the economy in the last quarter - may be starting to recover.

Budget boost

Most economists believe that Japan will not be able to sustain growth until consumers feel confident enough to start spending again.

However, they say consumer spending may have bottomed out, as restructuring begins to produce improvements in corporate profits and individual incomes.

The economy is also about to get a boost from emergency public spending measures approved late last year.

Prime Minister Keizo Obuchi's government agreed in December to pass an extra budget worth 18 trillion yen ($167bn) to ensure a positive GDP growth figure for the year.

Markets confident

Japan's financial markets remained bullish, despite the expected contraction in the economy.

In trading on Monday, shares tested last week's 20-month high, as money continued to be pumped into high-flying technology stocks.

The benchmark Nikkei index closed 182 points higher at 19,945.43, just shy of the psychologically important 20,000 level which was reached briefly on Friday for the first time in 30 months.