Economy Watchers in Japan Show Concern for the Future

Japan's Economy Watchers were a bit less optimistic about future conditions in July than they were in June. The diffusion index that expresses their judgment on future conditions dropped 0.5 points from 49.0 in June to 48.5 in July. At the same time, they continued to be positive about current conditions, showing a 3.0 point increase from 49.6 in June to 52.6 in July in the diffusion index that expresses their judgments on current conditions.This is one of the few times that their judgment on current conditions is more optimistic than that on future conditions, as can be seen in the first chart. Both the judgment on the current and future conditions are well above the indexes of March, the month of the earth quake and the tsunami when the index of judgment on future conditions was 26.6 and that for current conditions was 27.7.

Incoming data on the economy has generally been supportive of Japan's recovery from the disasters. Today, for example, balance of payments data show improving exports. Exports in June were 5504 billion yen, up from 3638 billion yen in March. The year to year change in exports has risen from a decline of 10.71% in April to one of 9.82% in May and one of 1.05% in June. However, one of the effects of the current financial turmoil in Europe and the United States has been to put upward pressure on the Yen. The yen has appreciated almost 10% over the past year and further appreciation is likely to dampen exports. Moreover, the current financial crises is likely to slow activity in Europe and the U. S., two of Japan's major customers.

bound to be more tenuous than it had been.