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Economy in Brief

Japan All-Industry Index Recedes...BOJ Policy Stays The Same...Fiscal Policy Amounts To Crossed Fingers...
by Robert Brusca   December 21, 2010

Japan's all-industry index for business fell to 95.9 in October from 96.1 in September. The construction and services (tertiary sector) improved in the month. But industry fell sharply, by 2% month-to-month compared to gains in the other two sectors of only about 0ne-half of one percent apiece. Hence, one big drop swamped two small gains.

Industry remains in the relatively best shape among sectors even with its sharp monthly drop. That index stands in the 50th percentile of its five year range. The services sector is only in the 42nd percentile of its five year range. Construction stands in the 18th percentile of its five year range. None of these are impressive figures.

In its policy statement today the Bank of Japan kept its policy stance as it has been. There continues to be a lot of concern about the economy. Fortunately the leading economic index which is forward-looking stands at a relatively higher spot in its range at the 84th percentile. Unfortunately, that index is down from the 89th percentile in each of the previous two months.

Japan is not showing signs of progress. It is very plugged into China's economy which is slowing. Its second biggest trade partner is the US, which has not ticked into high gear. Japan's monetary policy already has rates essentially at zero and because of extremely high debt–to-GDP levels Japan does not dare use fiscal stimulus.

Japan remains an economy with its back to the wall. What would help Japan the most would be a global economic revival to spur its exports. In short, Japan is at the whim of the international economy and its policymakers have few policy levers to push on that can generate much leverage at all.

Key Japanese Sector Surveys
  Raw Readings of Each Survey Percent of 5Yr Range*
Indices Oct-10 Sep-10 Aug-10 Jul-10 Oct-10 Sep-10 Aug-10
Biz Activity (METI:Indices) 95.9 96.1 96.9 97.0 44.0% 45.5% 51.5%
 Construction 76.8 76.4 78.6 76.9 18.4% 16.9% 24.9%
 Industry 90.9 92.8 94.3 94.8 50.4% 55.3% 59.2%
 Tertiary(services) 98.3 97.8 98.6 98.7 42.9% 37.4% 46.2%
LEI 97.7 99.1 99.8 100.1 84.2% 89.1% 89.7%
percentiles: 100 is high; Zero is low
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