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Economy in Brief

Japan's Service Sector Shows Improvement
by Robert Brusca December 16, 2009

Japan’s service sector as gauged by its tertiary sector index advanced in October after registering a drop in September. The index is down by 4.3 percent over 12-months compared to MFG and mining where the index is down by 14% over 12-months. These drops compare to March and February lows in the two indices, respectively. In March the tertiary index was down by 8.6% Yr/Yr. In February the mining and MFG index scored its largest 12-month drop at -36.9%.

Cleary Japan has been improving sharply from its recession lows. But while the mining and MFG sector has eight straight months of improvement in its mo/mo readings, services has only improved for one month in a row. Services also has improved in five of the past six months. Still, the tertiary sector is only up by 2.5% from its cycle low point whereas MFG and mining is up by 23.8% from its cycle low reading. MFG and mining currently stands by 21.8% below its cycle peak whereas the services sector is off by just 6.4% from its cycle peak. Two sectors are experiencing very different recession and recovery forces.

The service sector stands in the 53rd percentile of its range while Mining and MFG stands in the 40th percentile of its range, well below its mid-way mark.

Still, the failure of services to post consistent gains or strong gains while MFG is improving sharply is a sign that Japan is still struggling. We know it is having some renewed problems with deflation. In this environment because the service sector employs so many, it is easy to see why confidence does not easily come back and why Japan remains vulnerable to deflation even in face of some export recovery and a strong MFG rebound. The rising yen has pre-empted the possibility of compensation for service sector weakness with strong export-led growth. While Japan’s exports are recovering they are also hindered by the continuing strength of the yen. Japan’s recovery continues to face a dilemma

 Japan Industry Survey
   Recent Months Moving Averages Extremes; Range
  Oct-2009 Sep-2009 Aug-2009 3-Mo 6-Mo 12-Mo Max Min %-Tile
 Mining and MFG 86.1 85.7 83.9 85.2 83.1 80.7 110.1 69.5 40.9%
Tertiary 96.8 96.3 96.9 96.7 96.4 97.0 103.5 89.1 53.5%
Ranges, Max, Min since 1993
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