Today's releases of data on production, sales, employment and survey results for Japan have failed to clear the cloudy outlook.

Industrial production for manufacturing increased 2% in January from December, but the Ministry of Economy, Trade and Industry (METI)'s survey forecast a decline of 0.5% for Februaryand one of 1.0% for March. Although the forecasts (found in the Industrial Production Section of Haver's Japan data base) tend to overestimate the magnitudes of the changes, they do a good job in predicting the direction of the change, as can be seen in the first chart.

Retail sales were up 5.71% in January over December and 1.66% above January of a year ago. The magnitude of the January increase may merely be a bounce back from the depressed sales at the end of 2004, due, in part to the negative effect of unusual weather conditions--earthquakes and the tsunami--on sales in the latter part of 2004. The unemployment rate held steady at 4.5% in January and employment increased 0.74%. The Household Survey conducted by the Ministry of Internal Affairs and Communication shows a sharp rise of 11.52% in disposable income of worker households in January, but again this appears to be bounce back from the sharp decline in December. A similar, but more muted trend is shown in Living Expenditures of these households.

The Shoko Chukin Small/Medium Firm Survey indicates that these firms were expecting some improvement in business conditions in February and March, but were forecasting a decline in sales, the first decline since December 2002.The mixed message of these data is shown in chart two.