The latest data on the Japanese economy give such mixed signals that they underscore how fragile the recovery is--and how detrimental the superyen could be to Japan's growth prospects in 1995.

Leading the negative news was an unexpected annual-rate drop of 3.4% in the fourth-quarter gross domestic product. And signs of softness continued into early 1995. The jobless rate was unchanged in February at 2.9%, while the ratio of job offers to applicants slipped to .65, from .66 in January. The ratio has hardly moved in a year (chart).

Little wonder then that consumer spending fell at a 2.5% annual pace in the fourth quarter and started January with a 4.2% drop from a year earlier. Moreover, household buying may not pick up soon. The spring wage negotiations are expected to result in near-record-low pay raises this year.

However, other signs point to strength in Japan's economy. Housing starts in February were up 1.8% from a year ago, helped by low-cost government loans. Car sales last month rose 11.2% from March, 1994. And despite the yen and the Kobe earthquake, industrial production in February increased 1.9% from January. Furthermore, the Ministry of International Trade & Industry forecast that March output rose an additional 2.3%.

These diametric signs may be why the Bank of Japan did not cut the official discount rate on Mar. 31, choosing instead to nudge overnight lending rates to 1.75%, equaling the record-low ODR. The lack of an ODR cut disappointed financial markets, which had hoped for a bold BOJ move to weaken the yen and lift the economy. Indeed, maintaining industry's momentum will be hard given the drag on exports from the surging yen.

The door is not closed on an ODR move. January's consumer spending drop means that first-quarter GDP could be in or near negative territory. Back-to-back GDP declines would raise fears of a triple dip in the economy, giving the Bank of Japan little choice but to cut the discount rate.

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