Conflicting Japan Data—What Are They Telling Us?

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Tokyo, Japan

A slew of economic data out of Japan on Tuesday gives conflicting signals on whether Prime Minister Shinzo Abe's radical revival plan is working or not.

While household spending surged 5.2 percent in March over last year and the unemployment rate also dropped to 4.1 percent, below forecasts of 4.3 percent, retail sales disappointed, marking a 0.3 percent decline against expectations of a 0.6 percent rise. Industrial output also posted a meager rise of 0.2 percent in March over the previous month.

This disparity between the different data shows just how far Japan's economy still has to go, said analysts.

"What the discrepancy shows is that we are starting from a very weak base in the Japanese economy," said Manpreet Gill, senior investment strategist at Standard Chartered Bank, on CNBC's "The Call" on Tuesday.

(Watch This: Japan Consumers Are Benefiting From Abenomics )

"While there are sparks of positivity in there, the fact is, more broadly the economy remains very, very weak. While we are coming off a fairly low point we do have a very long way to go and policymakers seem to acknowledge that," he added.

Since he came to power late last year Prime Minister Shinzo Abe has engineered a turnaround in Japanese investor sentiment. His pledge to revive the Japanese economy and end deflation has led to a big stock rally over the past few months and pushed the yen lower, close to the 100-level against the U.S. dollar.

The Bank of Japan on its part announced in early April that it would pump $1.4 trillion into the economy in pursuit of a 2 percent inflation target.

(Read More: 'Abenomics' Effects Showing Up in Household Spend )

According to Gill, the pivotal component that will help Japan reach its inflation target will be wage hikes.

"Wage inflation is one of the critical components that the Bank of Japan is looking to get right to achieve its inflation target," he said.

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Haruhiko Kuroda, governor of the Bank of Japan

Rajiv Biswas, Asia Pacific chief economist at IHS Global Insight, said Tuesday's data overall marked an improvement in economic growth momentum.

"The recent Japanese economic data are signaling considerable improvement in Japanese economic growth momentum due to 'Abenomics.' The weaker yen is expected to translate into much stronger Japanese corporate profits in yen terms, improving prospects for better wage rises and bonuses for Japanese employees," Biswas said.

However, he agreed that disparities between the different data points, with some indicating improvement and some weakness, emphasized the low base from where the Japanese economy was coming.

(Read More: Has the Yen Hit Bottom Against the Dollar Already? )

"When you think Abe only came into power in December, it takes time for these policies to have an impact. He inherited a country deep in recession," he said. "The monthly data are going to look weak because Japan is starting from a low base. It's not going to be a strong growth story, but I expect the momentum to improve," said Biswas.

The Japanese economy contracted 0.2 percent in the last quarter of 2012, revised up from a 0.4 percent contraction, but the economic outlook for this year looks brighter on the back of "Abenomics."

Ed Rogers, CEO at Tokyo-based Rogers Investment Advisors, warned investors not to read too much into Tuesday's data.

"There is a thirst for data to be seen as more relevant than it actually is. Of course, it is not irrelevant, they are all pieces of the puzzle, but unless they post a really shocking change it's not going to have a substantial market impact," he added.

(Read More: Is the BOJ Backtracking on Its Inflation Pledge? )