SINCE late 1993, the mighty Japanese economy has been in a recovery notable for its tentativeness and lethargy.
As much as businesses in and out of Japan want the world's second largest economy to gain vigor, it hasn't happened yet.
The beginning of this year has not been encouraging. First the Kobe earthquake struck. Reconstruction will boost the economy in the long term, but the partial destruction of a major Japanese port is hurting imports and exports.
Potentially more detrimental, from an economic standpoint, is last week's appreciation of the yen. It may be more than Japan's fainthearted recovery can take. ''The flower has just started to bloom,'' says Bank of Tokyo senior economist Soichi Enkyo,''and now a very cold wind comes.''
Every time the yen gains in strength against the dollar and other currencies, Japan's big exporting companies warn that they are losing money. Their problem is that much of their revenue comes in dollars, deutsche marks, or other currencies -- which buy approximately 10 percent fewer yen than they did a month ago. The manufacturers need the yen to pay workers and make investments and purchases here in Japan.
The Nihon Keizai Shimbun, Japan's leading business newspaper, said last week that if the yen stabilized at 93 to the dollar, growth estimates for the next two years would have to be revised downward. Instead of growing 2.6 percent in fiscal 1995 and 3.0 percent in fiscal 1996, said Nikkei, the Japanese economy would expand by just 2.2 percent in each of those years.
THE yen's appreciation, known here as endaka, hits hardest at what was supposed to be one of the two main engines of the current recovery. At the end of last year, many economists forecast that businesses would increase their capital investments, meaning they would spend money on factories and other facilities. But if the yen stays at its current level -- it closed at 91 to the dollar in New York on Friday -- revenues will decline at many big Japanese corporations.
As a result, says Dr. Enkyo,''capital investment recovery will be delayed.''
The yen's rise also indirectly hinders private consumption -- what economists hoped would be the other driving force behind the recovery. If corporate profits decline, wages stagnate and bonuses get cut. That means consumers have less money to make purchases.
The most profound effect of the strong yen has been to force Japanese companies offshore in search of less costly places to manufacture. Although the levels of Japan's direct foreign investment have not yet reached those of the boom years of Japan's late-1980s ''bubble economy,'' companies here have been going to great lengths to get out of Japan and trim costs.
So far, the companies have been able to do so without causing significant increases in unemployment. But with each bout of endaka, companies hint that further cost-cutting will have unpleasant social consequences. These warnings also tend to undermine consumer sentiment.
On the other hand, notes Merrill Lynch Tokyo-based economist Ron Bevacqua, the anticipated dislocations ''never seem to happen.'' Japan has essentially privatized unemployment, with companies tacitly agreeing to carry some excess workers in the national interest, so Mr. Bevacqua says he thinks the companies ''would be able to muddle through'' this burst of endaka.
But even if companies manage to avoid endaka-induced layoffs, it appears they won't be giving their workers any extra money. Japanese trade unions are now engaged in the traditional springtime process of negotiating for annual pay increases. Early indications suggest this year's raises will be small -- a further sign that consumers will not have as much to spend as economists once hoped. On March 3, Nippon Telegraph and Telephone Corporation reached an agreement with its union to raise monthly wages by 2.8 percent -- the smallest increase in 10 years.
Many economists see the yen's strength as a necessity. They warn that until foreign companies begin selling more goods in Japan, earning yen that they would then need to convert into their own currencies, endaka will persist.