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Economy in Brief

Japan's Economy Watchers Index Bounces Back
by Robert Brusca  April 8, 2022

Japan's economy watchers index in March bounced back, rising to 47.8 from 37.7 in February. At that level, the economy watchers index has a 59.8 percentile standing above its historic median that occurs at standings mark of 50%.

The index showed improvement across all its components in the current reading. This marked a reversal month-to-month showing increases in every component compared to February when there were declines in every component except two; in February services and employment had improved.

Among the current components, the highest standing is for employment at an 88.3 percentile standing; that's followed by eating and drinking places that have a 66.9 percentile standing and retailing with a 64-percentile standing. The weakest current standing is for housing at a 38.1 percentile standing followed by the total for corporations at a 39.7 percentile standing.

The economy watchers future index also improved; that index rose to 50.1 in March from 44.4 in February. Its standing is at its 65.7 percentile mark, a moderately firm standing. The future readings all improved in March and this contrasts to February, when 4 component readings were weaker month-to-month while 6 improved by the month.

The future index shows the highest standings for services followed by eating and drinking places followed by the response by households. The weakest reading is for housing followed by manufacturers.

Still, the trends for the economy are not particularly strong. The three-month change still shows a decline in the current index and a net decline for all components. Over six months all the categories plus the headline increase excluding housing - that is weaker. Over 12 months everything in the current index has a weaker change than over the previous 12 months- but three components manage net gains on the comparison.

The future index shows only three components are stronger over three months, but only two components fall by more over three months than they fall over six months - those are housing and manufacturing. Over six months all the components are net lower and falling by more over six months than over 12 months. Over 12 months all components are showing bigger decline or smaller increases than they had over the previous 12 months – five categories manage outright gains but these are smaller than the gains logged 12 months ago-hence weaker momentum.

The economy watchers index sends a mixed signal about Japan's economy. In March declines over three months for both the total and the future index tell of weakness. But there is still a solid month-to-month gain for each index. There remains a good deal of weakness as far as momentum is concerned. This is not particularly surprising given the world situation with the virus still circulating globally and creating different degrees of havoc depending on which country it has struck. Japan is still hobbled by having China, its main trading partner, continuing to pursue a zero COVID policy. There's also the war going on in Ukraine. We are now looking at data from March and the Russia-Ukraine war started late in February. Japan's economy watchers index still was able to mount an improvement over this period. But we need to be wary about what kind of follow through we get and what kind of impact the war and its obligation for sanctions is going to impose on Japan and the rest of the world economy. Central banks globally are beginning to reverse their easy monetary policies and this is going to be something else weighing against growth in the future.

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