Japanese Finance Minister Sadakazu Tanigaki said Thursday the nation's economy is recovering steadily, with rising corporate profits filtering through to the household sector. "The economy has been recovering firmly," Tanigaki said in a speech at the Keidanren, Japan's biggest business lobby. There is an emerging trend in which "brisk corporate profits are spreading to households," he said. However, Tanigaki also warned about Japan's heavy indebtedness "We must admit that (Japan's finances) are in a severe state," Tanigaki said, pointing to the country's public debt, which amounts to about 1.5 times its gross domestic product. He said the draft budget for the next fiscal year starting April, announced by the finance ministry earlier this week, will serve as a "platform" to build a leaner government, Tanigaki said. The MOF Tuesday presented the Cabinet with a Y79.69 trillion draft budget for next fiscal year that would enable the government to limit new bond issues to below Y30 trillion for the first time in five years. Tanigaki also said Japan needs a small, effective government as it faces a shrinking population. Earlier, the government said Japan's population dropped this year for the first time on record, signaling the start of a demographic shift for one of the world's fastest-aging societies.