Japan’s Economy Watchers – Conditions Sag

Japan’s Economy Watchers Index saw its current and future indexes fall and indicated contraction in March. We can only imagine the knock-on effects of impending U.S. tariffs on these perceptions and expectations in the months ahead.

As it stands, Japan’s economy watchers survey show month-to-month attitude deterioration in their diffusion responses up and down the line. For the current conditions survey, entries erode except for eating & drinking places, manufacturers, and services. For the future index, all the responses are weaker month-to-month except for housing, corporations, and manufacturers.

In terms of percentile standings on survey responses from March 2004 to date, only one category in the current or future services, current manufacturers, has a reading above the 50% mark making it the lone response above its historic median on this timeline. It achieves this ‘milestone’ with a diffusion reading of 47.8, that nonetheless indicates contraction. Manufacturers also have the highest diffusion ranking in the future survey but at the below median 46.2 percentile mark; the topical diffusion reading of 47.4 indicates ongoing contraction.

All of this leads us to the more general, if depressing, conclusion that conditions are not improving but are deteriorating and the best sectors with few exceptions are getting better month-to-month but only in the sense that they are worsening more slowly.

The ratio of future to current standings (the percentile columns) show that future standing are above current standings only for housing and employment. Employment and housing have the two lowest outright diffusion readings in the current survey – no wonder their standing ratios are better for the future. The most depressed future to current standing ratios are for eating & drinking places and for services.

This is really a very downbeat survey and while the data plot is not necessarily that dismal-looking and there have been some recent improvements, they now appear to be unwinding and the decaying trend from the 2023 local peak readings is clear. The environment now looks like it will decay. This is not the trend you want given that the environment seems to be worsening…batten down the hatches!