Matt Robinson, economist with Moody's economy.com, conceded the numbers were "a bit higher than (he) was expecting."

Hiroshi Shiraishi of Lehman Brothers agreed. "Not only retail sales but household spending came in a bit unexpected," he said.

Retail sales increased 1.9% against the forecast for a 1.3% increase and the prior month's 0.3% figure. Household spending also surprised to the upside, decreasing 0.5%, less than the 1.8% decrease forecasted.

Still, Shiraishi said we "shouldn't get too excited about this, there are some factors pushing up the figures, (including) the price effects from high energy and food prices."

Kyohei Morita, economist with Barclays Capital agreed, and said higher-than-expected inflation figures released earlier on Friday backed up the boost seen in retail sales.

Nevertheless, he said household spending power has taken a downturn and "will certainly deteriorate."

Shiraishi agreed, saying that although "the number does suggest that spending is holding up, with wages remaining very subdued, the trend growth for consumption should be fairly subdued."

Robinson also pointed to declining real wages as a damper to retail sales, along with weakening consumer confidence.

"I think that's a real problem for the Japanese economy given that private consumption represents 60% of their GDP," he said.

"Japan will be really relying on the household economy to keep the economy afloat in 2008."

Still, Robinson said he isn't calling the current state of the Japanese economy a recession.

By Megan Ainscow, This email address is being protected from spam bots, you need Javascript enabled to view it

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