EPA chief Taichi Sakaiya said Wednesday that Japan's economy will grow at a pace of 1 percent or higher in fiscal 2000, as promised earlier by the government.

The nation's top economic policy planner said in a speech at the Japan National Press Club that the economy may contract in the October-December quarter, but that for the whole of the fiscal year ending March 31 it would inch forward by at least 1 percent.

While noting that the economy remains on a gradual recovery path, he said the government must not let down its guard but continue to take a stimulative fiscal stance.

Sakaiya said a recent recovery in corporate earnings has yet to fully trickle down to employment and household incomes. He also said a surge in long-term interest rates and the yen's value could hamper a long-sought recovery.

On Tuesday, the government and the three ruling parties decided to compile an auxiliary budget for fiscal 2000, to give the economy yet another shove.

Sakaiya said the planned extra budget would pour money into projects to promote information technology, respond to the aging population, protect the environment and improve urban infrastructure.

But he stopped short of revealing the size of the extra budget, saying only the government and ruling parties -- the Liberal Democratic Party, New Komeito and the New Conservative Party -- will work the measure out late this month.