Worst looks over for Japanese economy

Japan's economy contracted dramatically in the fourth quarter of 2008 and the first quarter of 2009 but recent reports indicate that the economy may have seen the worst.

The Japanese economy contracted 3.2 percent in the last quarter of 2008 and is estimated by economists to have contracted over 4 percent in the first quarter of 2009.

Reports from last week and today indicate that the economy has performed somewhat better since.

Last week, the Cabinet Office reported that it composite coincident index of business conditions fell to 84.9 in March from 85.2 in February, the smallest decline in eight months. Even better, the leading index rose to 76.6 in March from 74.5 in February, indicating a possible rebound in the near future.

Another report from the Cabinet Office based on the economy watchers survey showed that workers in economically-sensitive jobs have become more confident about the economy. The survey's diffusion index for current conditions rose to 34.2 in April from 28.4 in March. The diffusion index for future conditions rose to 39.7 in April from 35.8 in March. Both indices are now well off their lows of 15.9 and 17.6 respectively hit in December last year.

Today, we learn that Japanese consumers have also become more confident. The Cabinet Office reported today that its consumer confidence index rose to 32.4 in April from 28.9 in March. Based on the index, Japanese consumer sentiment last month was at its highest level in 10 months, having rebounded from a low of 26.2 in December.

So it is quite clear that the Japanese economy is stabilising. It now remains to be seen whether the improvement can develop into a sustained recovery.