The US labour department's report showed that the jobless rate fell to 9.4 per cent in July, the first decline in 15 months.

Shortlived optimism

But the optimism over Japan's economic recovery may be short-lived as orders for core machinery in the April-June quarter fell almost five per cent from the previous quarter.

Japanese manufacturers forecast a sixth straight quarterly fall in machinery orders in July-September, with the government estimating an 8.6 per cent slide.

Japan has overcome the worst but may take two years to fully recover [Reuters]

Yuichiro Nagai, an economist at Barclays Capital in Tokyo, warned against getting too excited about the latest numbers, saying that June's sharp rise stems mainly from a big one-time jump in orders from the non-ferrous metals industry.

Otherwise, he added, core orders were generally in line with forecasts.

An uptick in global demand, particularly from China, has breathed some life back into Japanese manufacturers recently, with factory output rising 2.4 per cent in June for the fourth monthly climb.

A separate finance ministry report on Monday provided more encouraging news.

It showed the current account surplus – Japan's broadest measure of trade with the rest of the world – rising 144 per cent in June from a year earlier to 1.15 trillion yen ($11.8bn).

This marked the first increase in nine months as the decline in exports eased.

Slow recovery

Junko Nishioka, chief economist at RBS Securities Japan, said although the worst is over the government's third-quarter forecast signals a limited pace of recovery ahead.

"Recently, several major companies raised their earnings projections for this fiscal year," he said in a report.

"We have managed to avoid a second Great Depression ... but full recovery is at least two years and probably more"

Paul Krugman, Nobel prize-winning economist

"However, those upward revisions basically rely on their fixed-cost reduction, not a dramatic upturn of their future demand."

A Nobel prize-winning economist, meanwhile, said that the world had managed to avoid a second Great Depression due to the aggressive stimulus spending by governments, but warned that full economic recovery will take at least two years.

Speaking at a capital markets conference in Kuala Lumpur, Malaysia, Paul Krugman, said economic and exports growth figures indicated that the worst of the global crisis was over.

"We have managed to avoid a second Great Depression ... but full recovery is at least two years and probably more," Krugman, who won the Nobel Prize in Economic Sciences last year for his analysis of how economies of scale can affect international trade patterns, said.

Asia, he said, is likely to see a faster rebound than the US and Europe, partly driven by the recovery in manufacturing exports.

But he cautioned against expecting any "Phoenix-like" recovery such as in the 1997-98 Asian financial crises, where economies expanded dramatically led by a sharp rebound in exports.