One step forward, another back. While the European economy showed signs of life this week, Japan is looking altogether less perky. In the first quarter, real gross domestic product grew a meagre 1 per cent year-on-year. That was above forecasts but still below most estimates of the potential growth rate and the 1.5 per cent pencilled in by the Bank of Japan for the full fiscal year beginning last month.

Of course, quarterly data can be erratic. But, as in other parts of the globe, the signals point to weakness in the next quarter or so, too. Net exports, the biggest contributor to growth, are vulnerable as bruised US homeowners trim spending. A stronger yen further crimps overseas demand. Many Japanese manufacturers lack sufficient pricing power to pass on the rising cost of raw materials. The resultant squeezed profit margins put pressure on wages and capital expenditure; there are already signs that the purse strings are being tightening at home. Private investment (excluding residential) fell 2.4 per cent in the first quarter on a year-on-year basis, the first contraction since mid-2002. Receding investment in machinery led the fall, implying that Japan Inc does not see cheerier times round the corner.