TOKYO, July 23 - A key measure of Japanese business activity rose in May from the previous month, though by less than expected, the latest in a string of evidence pointing to the possibility of a mild pickup in the economy. The all-industries activity index, a barometer of activity in sectors such as construction and manufacturing, rose 0.2 percent, the Ministry of Economy, Trade and Industry said on Wednesday. A poll by journalists last week had produced a median forecast of a 0.4 percent rise. The index had fallen 0.6 percent the previous month.
"The all-industries figures have been a series of pluses and minuses since the beginning of this year," said Shuji Shirota, economist at Dresdner Kleinwort Wasserstein. "That shows that Japan's economy is continuing to be flat." The figures will nevertheless add to evidence that at least the world's second-largest economy is not getting worse, and may even signal a cautious recovery, though caveats remain. Last week, the Bank of Japan gave a slightly more optimistic view of economic conditions at home on a better outlook for exports, its first upgrade in a year. But the report showed the BOJ's basic assessment that conditions were flat had not changed. Its report came just days after the government kept its own cautious view unchanged.
Subsiding worries over the war in Iraq and the effect of the SARS outbreak in Japan's export markets in Asia, together with rising share prices, have helped to underpin a slow improvement in business spending and corporate profits. However, data has shown ongoing weakness in consumer demand as Japan's unemployment rate holds near a record high and concerns over wages make shoppers more cautious. That weakness was reflected in the tertiary sector index, a core component of the all-industries index mainly covering the services industry. The index declined by 0.1 percent in May from April, compared with a poll forecast for no change. "Looking at the tertiary sector index, it's been pretty much flat through April and May," said Seiji Adachi, economist at Credit Suisse First Boston Securities (Japan) Ltd.
"Strong machinery orders figures have given the impression that a recovery is under way in the manufacturing sector. So, you can say the tertiary sector is lagging in comparison."//