Japan's Sector Indices Struggle to Hold Ground

Japan's sector indices improved month-to-month in three of four sectors as well as overall. But year-over-year all sectors are lower and all sectors have been net lower over 12 months for seven months in a row.

The Bank of Japan has clung to its outlook that the economy continues its moderate improvement. But its outlook for inflation has begun to prevaricate. Japan is clearly still struggling as the sector indices tell us.

On the good news front, the Kyushu Electric Power Company plans to restart a nuclear reactor in Japan in July. That will be the first nuclear restart in about two years since nuclear guidelines were tightened in the wake of the Fukushima nuclear disaster. This is a potentially very important development for Japan's economy and trade picture since Japan has been forced into massive petroleum imports in the wake of the nuclear shutdown. Bringing its nuclear capacity back on line will allow Japan to greatly reduce its imports of petroleum and to improve its trade balance.

Japan's sector indices tell us a story of a still weakened economy. The overall `all-industry' index sits in the 62nd percentile of its historic queue (or rank) of data. That means the index is weaker 62% of the time and stronger only 38% of the time. That leaves it above its historic midpoint (at the 50% mark) but still not strong and just short of a top two-third standing. The construction sector sits only in the 37th percentile of its queue, marking its level as nearly in the bottom one-third of its historic data ranks. Industry (or manufacturing) has a 57th percentile standing which is still quite moderate. The Tertiary sector, or services sector, has a 70th percentile standing.

Japan's sectors, while stronger this month on balance, lack any significant upward momentum. The BOJ still brands the economy as showing moderate growth, but its warning about a potential slippage in inflation may belie some concerns about the eventual evolution of growth. Japan is not showing any tendency to accelerate. The economy is either floundering or engaged in a moderate expansion, not the best of tradeoffs especially with policy already so committed to providing whatever stimulus it can.