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Economy in Brief

Japan Indicators Show Softness
by Robert Brusca  September 19, 2012

Japan's economic indices show faltering economic momentum. The economy-watcher gauge and its forward-looking measure are both easing. The NTC/Markit manufacturing sector gauge is weaker. The Teikoku manufacturing gauge echoes that signal with weakness in retailing and wholesaling. Teikoku shows a tiny uptick in the weak services sector and some rebound in construction.

To restore confidence and prop up the economy the Bank of Japan has followed the Fed’s lead. The Bank of Japan announced a new round of stimulus to revive the economy by expanding asset purchases by another 10 trillion yen. The central bank also cut its assessment of the economy, saying the recovery is pausing. The total size of the stimulus program was lifted to 80 trillion yen following an additional 5 trillion yen to purchase Japanese government bonds and another 5 trillion to purchase treasury discount bills. The remaining asset purchase target now stands at JPY 55 trillion.

Whether this program will have a material effect on the economy is hard to say. Central banks around the world have faith that these programs have impact yet the in the US where the Fed’s balance sheet has been greatly expanded the impact on the economy has been small and has not made the critical difference to launch it into a normal recovery. All estimates of the impact of these programs find that there is some positive impact but those estimates vary in their findings of the amount of that impact.

Japan is still digging out from its triple disasters that followed on the heels of the global recession, fighting off the impact of a strong yen, dealing with the adversity of a shrinking population and with political partisan instability. Japan is currently making huge adjustments in its power grid in order to wean itself off nuclear power. It is not surprising that Japan is still reeling.

The recent events in the Pacific, however, seem to be making things worse. Japan’s move to purchase what it calls the Senkaku Islands has inflamed tensions with China and disrupted the operations of Japanese firms operating in China. Other sorts of retaliatory measures have been discussed. Both countries claim the islands and neither shows any sign of backing down. The spread of this political tension to economic enterprises will not be good for either Japan’s or China’s economies; each is struggling in its own way.

The conflict with China is simply the latest in a series of events that seem to pop up every time Japan’s economy tries to get itself on solid footing to expand. It is still soon to gauge the seriousness of the expanding snit with China.

Tankan Results
  Readings Averages  
  Aug
12
Jul
12
Jun
12
May
12
Aug
12
Jul
12
Jun
12
Diffusion
Economy Watchers 43.6 44.2 43.8 47.2 66.9% 68.4% 67.4%
Employment 52.5 52.1 53.9 55.2 76.9% 76.2% 79.4%
Future 43.6 44.9 45.7 48.1 66.7% 70.0% 72.1%
NTC MFG 47.7 47.9 49.9 50.7 72.0% 73.0% 80.7%
Econ Trends (Teikoku'/50 neutral/weighted diffusion)
MFG 36.5 37.0 37.0 38.0 59.0% 60.6% 60.7%
Retail 37.3 38.3 38.1 39.0 66.6% 70.4% 69.6%
Wholesale 36.4 36.8 36.7 37.4 62.2% 63.5% 63.1%
Services 42.1 42.0 41.9 42.4 67.1% 66.7% 66.5%
Construction 38.0 37.2 36.2 35.5 90.2% 86.7% 81.9%
percentiles: 100 is high; zero is low
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