Japan Consumer Confidence Rises But Remains Short Of Being Even Neutral

Japan paradox - The paradox of Japan’s consumer confidence is that the index is over the 50 percent mark of its range. It also stands right at its average level of readings going back to 1988. Even so this is a diffusion index with 50 as the theoretical point of neutrality. At a level of 39.4 we are instead at the average reading and at the mid-point of the range of values of consumer confidence readings going back about 20 years.

An unexpected standard - Since the economy usually is expanding, we would expect the average of a figure like consumer confidence to be above 50. But Japan has had some hard times during this period including its so-called lost decade. As for the index range we can’t be a so sure of its values or middle but a value near 50 also seems likely. The readings on Japan confidence do not conform to reasonable expectations. So instead so looking at this a diffusion index with 50 as neutral we should look at it with its man value set as neutral. In July 2009 the index stands at its mean reading –a mean reading based on about 20-years of observations. Adjusted for its own mean, therefore Japan’s confidence level has gotten to zero.

A better interpretation - Based on the plot of past values it looks like Japan’s consumers are a relatively content when the index resides between values of 50 and 45 on this index. So while the index reading is back to its long term average that is not yet a good enough spot. For now with some rise in machinery orders in hand it looks like Japan’s economy is getting back on something more like an even keel. Consumer prices are still falling so it’s too soon to say that Japan is out of the woods. In last month’s report Japan was the last large OECD economy still giving off negative readings on the OECD leading indicators series. But seeing some firmness in consumer confidence does give us some reason to take heart. Japan may be on the verge of turning the corner to better times.