Monday, 16 March 2009

Less gloom for Japan

Amid all the gloomy reports on the Japanese economy, there are some hopeful signs that the sharp contraction seen over the past few months may be coming to an end, at least for the time being.

Some of the reports last week had shown how dreadful the economic contraction in Japan has been. The Cabinet Office reported that the economy contracted 3.2 percent in the fourth quarter, the sharpest contraction since 1974. The Ministry of Finance reported that exports plunged 46.3 percent in January from a year earlier, sending the current account into its first deficit in 13 years. The Ministry of Economy, Trade and Industry reported that industrial production fell 10.2 percent in January from the previous month, its biggest fall on record.

However, more timely indicators suggest that such sharp contractions may not persist in coming months.

At the end of last month, the Nomura/JMMA Japan Manufacturing Purchasing Managers Index was reported to have risen to 31.6 in February from a record low of 29.6 in January, indicating that the sharp plunge in manufacturing activity has come to an end, though not its contraction.

Last week, the Cabinet Office's economy watchers survey, a survey of people in economically-sensitive jobs, also showed improved numbers. The diffusion index for current conditions rose 2.3 points to 19.4 in February, the second consecutive month of increase. Even more impressively, the diffusion index for future conditions rose 4.4 points to 26.5, also the second consecutive month of increase, and taking the index well off its low of 17.6 in December.

Also last week, the Cabinet Office reported that consumer confidence improved in February. Its consumer confidence index rose to 26.7 last month from 26.4 in January, again the second consecutive rise in the index after it had fallen to 26.2 in December, the lowest since the government began compiling the figures in 1982.

And if the improvement in Japanese consumer confidence looked small, at least it was complemented by the report last week of a similar improvement in the United States. The Reuters/University of Michigan index of consumer sentiment rose to 56.6 in March from 56.3 in February. In addition, retail sales in the US declined just 0.1 percent in February after increasing 1.8 percent in January. A more resilient US consumer should help put a floor on plunging Japanese exports.

Of course, these are all very tentative signs of stabilisation in the economy. The stock market, for one, has shown little evidence of a return of bullishness, the Nikkei 225 stock market index actually touching a 26-year low at the beginning of last week before bouncing to finish the week up 5.5 percent.

Still, at least we can now look at the Japanese economy without the unmitigated gloom that has pervaded it for the past few months.

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