The message from official Japan couldn't be clearer: the end of the economic slump is finally in sight. In recent weeks, Tokyo has trotted out a parade of politicians and bureaucrats to make the pitch: the bad-loan mess at the banks is under control, more public-works money is rolling down the pipeline, consumers are perking up. Even the stock market is rising. In short, the economy is coasting in for a soft landing. But Japan's citizens aren't buying the message, a problem that Prime Minister Keizo Obuchi felt compelled to address in a recent speech to the Diet, where he urged his glum compatriots to practice what he termed "constructive optimism."

Revving up sentiment won't be easy. As Japan's recession deepened last year, the country's citizens seemed increasingly gloomy. The collective funk shows no signs of lifting, and rosy official scenarios--no matter how often repeated--aren't likely to do the trick. The problems run too deep. Earlier this month, the yen was trading at a 28-month high of 108 to the dollar, threatening to choke profits at already-struggling exporters. (By last week, it had inched back to 116.) Interest rates have jumped more than a percentage point in the past month, a rise that could cripple companies and pile up more bad loans for the banks. Moody's Investors Service last week lowered its ratings on three of Japan's biggest banks, warning that problem loans are increasing faster than the banks can write them off. "Forget the soft landing," says Andrew Shipley, an economist at Schroders Japan. "The question is: Is the landing gear down? They are going straight into the tarmac."

Will Japan splatter? Certainly there will be plenty of pain ahead. Japan's total debt is already more than 110% of GDP, a ratio second only to Italy's among major industrialized countries. Its budget deficit this year is 10%, bigger than troubled Brazil's. The recent rise in interest rates shows that investors aren't willing to tolerate endless government spending. Now at less than 2%, bond yields could soar to 5% this year, says economist Tadashi Nakamae, who runs a private think tank. Such an increase, he predicts, would push more tottering companies over the edge and drive unemployment, currently at 4.3%, to 10% or more. "What people call the 'bankruptcy' of the whole system is already happening," says Nakamae. "The current system is not sustainable."

The economy does have a few bright spots. Sales of minicars, personal computers and faxes are up. But overall consumer spending by salaried workers shrank 1.8% last year, only the second decline since World War II. And while the Nikkei stock average has picked up 8% this year amid signs the government is pressing banks harder to clean up their loan mess, share prices are languishing at levels they first hit in the mid-1980s. And investors don't have much reason to prolong the rally. Bankruptcies are near post-war highs. Nearly 3 million Japanese are out of work, and as many as 7 million redundant workers are clinging to jobs in companies that don't need them. On city streets, the cracks in the system are starting to show, as former white-collar workers join the ranks of the homeless. "This is the most desperate situation I've ever seen," says Guy Bishop, an American who has worked with the destitute in the capital for seven years.

The government is running out of options. Interest rates were at record lows until the recent jump, but cheap money has also failed to stimulate growth. Still burdened with bad loans left over from the real estate crash in the early 1990s, banks are slashing lending. Digging itself deeper into debt, Tokyo has tried to jump start the economy through a familiar strategy: building bridges, roads and dams. Since mid-1992, the government has unrolled spending plans totaling $885 billion, more than the annual budgets of Britain and France combined. Yet the economy shrank last year, and the government predicts it will decline an additional 2.2% this year. Last week, the head of the Economic Planning Agency, Taichi Sakaiya, warned the economy might shrink as much as 2.4% in the year through March, according to a leading financial daily. (He later denied making the forecast.)

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PHOTOGRAPH BY DAVID PAUL MORRIS