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Economy in Brief

Japan's Vehicle Registrations Signal Trouble Ahead
by Robert Brusca  February 4, 2016

New vehicle registrations in Japan fell by 2.5% in January as they continue to gyrate with offsetting up down movements for the third consecutive month. On balance, registrations are higher over three months but lower over six months and 12 months. The ongoing intermediate trend for registrations is lower.

All other vehicle sales or output data also show declines year-over-year and most show that the weakness is ongoing over shorter periods. Over three months, motor vehicle sales are lower and truck output is falling rapidly. Passenger car output is up at less than a 1% annual rate over three months.

Both overall industrial output and retail sales are showing three-month declines. For the most part, the trends reveal accelerating deterioration.

Japan's year-over-year vehicle registrations have their strongest correlation with motor vehicle sales with a correlation of 0.92. The next best correlation is with passenger car production with a correlation of 0.82. The correlation with truck IP is 0.78 and with retail sales overall it is only 0.56.

Car registrations data are available a month ahead of the other series. Its correlation with motor vehicle sales is especially valuable. The weakness in registrations in January suggests strongly that motor vehicle sales and vehicle output are going to continue on their down trends. During these difficult times, the U.S., the U.K. and Europe have been buoyed by strong or rising vehicle sales. Japan's vehicle sector has not been anyway near as kind in boosting retail sales and spending in Japan that vehicle sales have been in the rest of the developed world. And now motor vehicle sales appear to be ready to become a drag on the overall economy.

The Bank of Japan has some newly initiated policies for stimulus. It has instituted a program of negative interest rates. That program is brand new; it is way too soon to expect to see any impact from it just yet. But the auto sector gives us one clear reason why the BOJ may have wanted to pull the trigger on a program with more stimulus. The auto sector, as well as all of retailing, and the factory sector all are showing some very downbeat results. Japan's economy is headed for trouble. The BOJ's policy move looks like it is, classically, too little too late.

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