Japan: Economy Watchers

Japan's economy watcher index improved in November. The future index also improved in November; however, both the current and the future indexes continued to produce readings below 50 indicating that contraction remains the order of the day.

Economy watchers indexes remain weak These indexes have been skimming below the level of 50 for some time (3-month, current; 9-month, future). Weaker, yes, however, not by much. There is mild contraction indicated in both the current state of the economy and the expected future state of the economy. However, this is not an entirely unusual situation because the ranking of the current index is a 64-percentile standing which indicates the diffusion index is above its median which also sends home the message that a below-50 reading has some sense of normalcy to it for Japan (evaluated on data since 2003). The same is true for the future index, at 49.4, is below 50 and has a queue percentile standing at its 56.5 percentile, above its median for this same period.

Current Index The current index has month-to-month index changes that are mid-range for a diffusion score of 50%. But October and September have diffusion scores below 50, showing more indexes are weakening month-to-month than are strengthening. Sequentially, the readings are compared on a period-average-to-period-average basis. The 12-months average improves in 90% of the components compared to the average of 12-months ago. Comparing the 6-month average to the average over 12 months shows that no sector improved. Comparing the 3-month average to the six-month average across line items, 60 percent of the sectors improved.

Future Index The future index improved broadly month-to-month in November with a diffusion reading in November at 80%, up from only 10% in October and 30% in September. The diffusion reading on the future index over 12 months, 6 months, and 3 months, are similar to the pattern of the current indexes. There is strong breadth over 12 months, no improvement over 6 months compared to 12-months, and a reading showing 60% improvement over 3 months compared to 6 months. Note that these metrics are different from the period-to-period change in the table that is constructed from point-to-point data (not averages). But the signals really are quite similar (except for the 12-month point-to-point results, that show broad weakness in contrast the broad strength signal by comparing averages).

Manufacturing In the Tankan index, the manufacturing readings for large firms get the greatest weighting. In this index, manufacturing had improved in October, but it dipped in November with a reading even below its September value. In contrast, the future index sees manufacturing better in November than in October but still slightly below its September reading that had edged above 50.

Weak-to-sideways assessments The current index has only three-line items out of nine with readings below a ranking of 50%: housing, nonmanufacturing corporations, and employment. The same three items are the only ones to rank below 50% in the future survey as well. The greatest strength in the current index is led by eating and drinking places, retailing and households. The future index shows its greatest strength in the ranking for services and eating and drinking places. Manufacturing ranks below the current index rank but ranks stronger than the headline future index. Both the current and future indexes have readings at or close to a rank standing of 40% on a measure that counts the proportion of observations above 50% ranked over time. Overall, this is a reading that shows little change and keeps the readings moving sides ways showing moderate contraction in the current and future surveys.