Japan's Economy Watchers Readings Cycle Lower

Japan's economy watchers index in February tipped slightly lower to 37.7 from January's 37.9; this small backtracking compares to a reading of 57.5 in December. Clearly the economy watchers index in the year 2022 has the economy on much weaker footing than it had been at the end of 2021.

The facts: Over the last three months the economy watchers index is down by 19.1 points; over six months it's up by 2.8 points; over 12 months it's down by four points.

Over the past year the economy watchers index has barely changed and has not been very volatile. It is slightly stronger over six months; it's slightly weaker over 12 months. The queue standing of the index in February is at its 13.4 percentile, a level that marks it as being weaker since 2002 only about 13% of the time. The economy watchers index tells us that Japan's economy continues to struggle as of February.

Current component trends These general points about the economy watchers index permeate the various components which show, for the most part, (1) small changes from January to February and (2) significantly weaker levels in January compared to December plus (3) declines by all components over three months coupled with (4) very small changes over six months, and for the most part, (5) most small declines over 12 months. These generalities are the ‘rule' up and down the line of this survey. The main exception to these rules is that over 12 months there's a more significant weakening for eating & drinking places and that industry depends upon improved conditions on the virus front in order it to be back on its feet.

Current component levels All the queue standing components of the current index are below the 50-percentile level. That's significant because the 50th percentile on the queue standing represents the location of the median for each series. So that each series is performing at a below median level of performance. The best performing of these components on a relative basis is the employment reading which is at its 45.6 percentile standing: the next best after that it's for manufacturing establishments at the 31st percentile standing. The worst performing component, eating & drinking places, had its 4.2% standing followed by services overall at a 9.6% standing. Pretty clearly Japan's economy's struggle is broad-based. Fortunately, employment is the least affected among the components surveyed in the table. The employment reading is below its median, but not by much and its relative strength (compared to other readings) provides stability for the economy because employment supports wages and income creation and thereby spending.

The future index The economy watches future index moved up slightly to 44.4 in February from 42.5 in January; these two readings are somewhat below their December level of 50.3. The future index improved slightly month-to-month and January while the January-February pair are weaker than December by 6-8 points. That is significant, but it is much less that the 20-point drop off for the current index. The future index also shows three month declines across all its components as did they current index. Over six months the future index is mixed but little changed. The future index, like the current index, is moderately lower over 12 months. The percentile standing of the future index is at the 28th percentile overall; across components it ranges from a low of the 20th percentile for nonmanufacturing firms to a high of 34.7 percentile for employment assessments. Like the current index, the relatively strongest reading is for employment in the future index. However, the percentile standing is lower in the future index.

Summing up These findings give a negative assessment of Japan's economy; it's still floundering losing momentum and having a future index that also has little momentum and relatively weak readings across the board. Japan is now caught in a difficult situation with China, its main trading partner, struggling to get ahead and still dealing with its own zero COVID. Globally firms are still dealing with various kinds of supply shortages and now there's a war in Ukraine. Japan is participating in posting sanctions against Russia. The war is likely to further weigh on economic performance. The virus continues to be a factor, too, as we can see in the relatively poor standings for Japanese services sector. We can infer from the lost momentum and weak standing in the eating & drinking sector that no fast turnaround in the state of the virus is expected in Japan. Expectations generally now are somewhat neutralized by the ongoing invasion of Ukraine by Russia, the huge spike in global oil prices and for other commodity prices, and uncertainty about the future, as well as by the instability that might be caused by China's backing of Russia despite its extraordinarily aggressive stance against Ukraine. China's support of Russia as it rattles its saber involving the potential use of nuclear armaments is chilling. China also is using this opportunity to weigh in on, and to admonish the U.S. and others, over their Taiwan policy. This extension of Ukraine-related instability clarifies that many events are geopolitically connected even when they are geographically disconnected.