There have been data suggesting an improvement in consumer sentiment, but that is not yet leading to people actually loosening their purse strings

Yasuaki Kudamatsu Tsubasa Research Institute

The figures, from the Ministry of Economy, Trade and Industry (METI), show that while some sectors, notably export-led industry, are doing a little better, retailers and service industries remain in deep trouble.

METI's monthly all-industry index for March crept up 0.5% from February, but the index which measures services fell 0.4%.

"The economic deterioration may be nearing an end, but the positive signs are still not broad-based," said Yasuaki Kudamatsu, senior economist at Tsubasa Research Institute.

"There have been data suggesting an improvement in consumer sentiment, but that is not yet leading to people actually loosening their purse strings due to declining income and job uncertainty."

Lack of care

Part of the problem, officials said, was the scandal over mad cow disease, which had hit sales at fast food outlets and restaurants hard.

Mislabelling of goods by some suppliers and an apparent lack of interest by government in dealing with the outbreak has harmed confidence.

But in a country where buying second hand consumer goods is almost unheard of people are simply not spending enough.

Companies are also limiting their spending, particularly on IT, as the temporary boost in software spending caused by a wave of banking mergers tails off.

My impression is that overall, economic activity seems sluggish," said METI current statistics division director Kazuaki Hasegawa.

The index is seen as an indicator for economic growth in general.

Japan has had three quarters of contraction, and observers hope that the industrial figures - industrial production rose 1.2% in February - will outweigh the trouble in the service sector.