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Economy in Brief

Bank of Japan Holds Policy Steady on Unanimous Voteā€¦
by Robert Brusca April 10, 2007

Japan’s economy watcher’s survey shows the ongoing downshift in Japan’s economy from a local peak reached back in March of 2006. Since then, the economy has showed less strength but in the recent three months or so the economy watcher’s index has showed some lift in its overall position as well as in its outlook. During this period job market conditions have remained positive and have stabilized. This index is one of the reasons that the Bank of Japan (BoJ) may remain confident that the economy is still doing alright despite some uneven reports early this year.

The indicators in the table below give a somewhat broader picture of the performance of the Japanese economy. The first panel of the chart shows the raw readings on several measures; the second panel re-expresses them as a percentile of the indicator’s own range of values over the past five years. For example the current economy watchers index shows the future component is in the 70th percentile (top 30%) of this five-year range of values. The other economy watcher indicators are near or above the 60th percentile, significantly above even the midpoint of their respective ranges (the 50th percentile mark is the mid-point). But the NTC MFG reading is relatively weaker at a 52.5 raw reading it shows some expansion. As a percentile of its five-year range it is weak, residing in only its 43rd percentile. The Teikoku indexes are relatively stronger. They are based on a more comprehensive weighting of questions put to survey participants. The MFG reading is in the 86th percentile of its range, much stronger than the NTC reading in its range. Also the services and construction readings are in the top 10 percentile of their respective ranges. Retailing is at a weaker but still firm 75th percentile.

The BoJ decision to keep rates on hold seems reasonable. The economy has had some uneven numbers but there has also been some new flirtation with deflation. The BoJ board seems to be trying to make sure that recovery is in gear before moving rates up as deputy governor Muto had previously promised. For the moment BOJ policy seem to be right where it needs to be.

Key Japanese surveys
  Raw readings of each survey Percent of 5Year range*
  Mar-07 Feb-07 Jan-07 Dec-06 Mar-07 Feb-07 Jan-07
Economy Watchers 50.8 49.2 47.2 48.9 65.6% 57.4% 53.7%
Employment 56.3 55.9 56.3 54.5 59.7% 57.9% 64.9%
Future 51.3 52.1 50.9 48.9 70.6% 75.0% 68.3%
NTC MFG 52.5 -- -- -- 43.5% -- --
Econ Trends (Teikoku'/50 neutral/weighted diffusion))              
MFG 47.2 46.7 46.7 47.6 86.2% 84.5% 85.2%
Retail 41.1 39.9 39.8 39.4 74.3% 69.9% 69.3%
Wholesale 44.6 43.8 44.1 44.8 85.8% 82.1% 84.8%
Services 49.9 49.4 48.9 49.3 92.2% 90.2% 88.5%
Construction 38.7 38.7 38.2 39.0 91.2% 91.0% 88.6%
100 is high; Zero is low
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