Japan's battered economy received a small dose of positive news on Friday, as the jobless rate unexpectedly fell for the first time in a year.
The jobs report, which showed unemployment dipping to 5.3 percent in January from 5.5 percent in December, does little to dispel the widespread belief that the current recession will continue at least through mid-year. But combined with declines in household spending and exports that were smaller than expected, they suggest that the worst may be over for the economy -- at least for now.
The bullish data come as the government has announced a plan to battle deflation and the Bank of Japan has agreed to buy more long-term government bonds and loosen lending requirements. Investors pushed stocks higher on Friday, with the benchmark Nikkei 225 stock index closing the week up 4.4 percent -- the largest weekly gain in five months.
A rising stock market and ebbing recession are a boon to Prime Minister Junichiro Koizumi, who has seen his popularity plummet in recent weeks. Koizumi has pledged to take a more market-oriented stance and to prevent a full-blown financial crisis.
Those twin goals have forced the prime minister into some policy contortions, pushing for banks to write off their bad loans while orchestrating a bailout of the country's largest corporate debtor, retailer Daiei Inc.
But with the economy showing at least tentative signs of touching bottom, Koizumi stands a better chance of getting through the end of the current fiscal year, which ends on March 31, without a major financial meltdown.
Longer term is a different matter. Koizumi is trying to contain an exploding fiscal deficit by trimming public spending, a move that hurts contractors and others dependent on government largesse. Many of Japan's largest manufacturers continue to move production to China, leaving the cream of Japan's blue-collar workers in the lurch. The economy overall lost 230,000 jobs in January. The exodus, along with record-low interest rates and falling wages, do little to spur consumer spending.
"The economic data out this week is looking better than people thought," said Matthew Poggi, an economist with Lehman Brothers. "But there are still plenty of structural problems that remain."
Poggi expects rising exports, particularly to the US, to provide at least a mild boost to growth, but for the economy as a whole to shrink about 1 percent this year.
As in past recessions, exporters like Canon Inc. and Honda Motors are often the first companies to benefit in a turnaround. That may not be far off.
Earlier this week, the government said that exports fell just 1.8 percent in January, the smallest decline in nine months and the country's surplus with the US grew nearly 15 percent. Inventories have also fallen five consecutive months, so manufacturers are likely to benefit from any turnaround in spending.
There are encouraging signs there, too. New home starts rose 3.5 percent last month, the first gain since last August. Household spending, meanwhile, fell half as fast as economists expected.
After years of stop-and-start recoveries, though, economists here are cautious about investing too much in any one set of numbers.