It appears that there is still some green shoots left in the news from Japan even though the underlying picture is one of deteriorating fundamentals. We learned recently how Q1 was absolutely horrid in Japan with out declining at an annualised 15.2% which, I a dread to say, are numbers normally reserved to the likes of the Baltics, Ukraine and Bulgaria. The second quarter will no doubt offer some improvement and the second derivative is likely to be all over the Q2 data in general. However, the real question is what kind of recovery or stabilization we will observe and as Edward pointed out recently those two things are not the same and what we most likely to see is the latter and not the former.

In Japan the green shoots crowd soldier on with the news that industrial production showed second consecutive month of expansion in April. Output consequently rose a healthy 5.2% from March and factories are estimated to continue the increase in production throughout May and June.

Japan’s industrial output surged the most in 56 years in April as a rebound in exports helps the economy emerge from its worst recession since World War II. Production rose 5.2 percent from March, the second monthly gain, the Trade Ministry said today in Tokyo. The increase was faster than the 3.3 percent economists estimated, and companies said they planned to boost output in May and June as well.

The yen gained on speculation funds will flow into Japan as the economy resumes growing after last quarter’s record contraction. Still, output is running at two-thirds last year’s levels, saddling manufacturers such as Nikon Corp. with workers they no longer need and driving the jobless rate to a five-year high of 5 percent.

I am skeptical as to the underlying dynamism here in the sense that Japanese companies are still cutting inventories both on a monthly and annual basis which suggest that companies are not expecting a vigorous uptick in future demand. Moreover, the annual print of industrial production restored the depression discourse by clocking in at a healhy 31.2 % contraction.

In the context of inflation the news confirmed that Japan is having none of the green shoots from its domestic market. Consequently, prices continued their deflationary trend with the general index as well as the index stripped from fresh food decining -0.1% from a year earlier.