— Japan July Leading Index Revised To -0.3 Pt M/M, 1st Drop In 2 Months

TOKYO (MNI) – Japan’s coincident composite index (CI), which
reflects current business conditions, rose a revised 0.6 point to 103.0
in July (vs. preliminary +0.5 pt to 101.8), posting the 16 straight
monthly rise, the Cabinet Office said on Tuesday.

In June the index rose a revised 0.4 point to 102.4 vs. preliminary
+0.1 point at 101.3. The coincident CI for May has now been revised to
102.0, up 0.2 point from April, from the preliminary -0.1 point.

These revisions reflect a stark improvement in capital investment
found in the quarterly business survey by the Ministry of Finance for
April-June released on Sept. 3, which came only two business days before
the Sept. 7 release of the index.

The Cabinet Office used to release the preliminary estimate of the
indexes of business conditions three business days after the release of
the quarterly MOF data to count key factors, but effective this month,
it has moved up the release of the preliminary data.

The government needs three business days to calculate the effects
of the MOF survey released in March, June, September and December to be
reflected in the preliminary business indexes.

The rise in the index in July was led by increases in small
manufacturer sales, the ratio of job offers to job seekers, large power
consumption, and overtime hours worked at factories, offsetting declines
in producers’ shipments, producers’ investment goods shipments
(excluding transport equipment) and commercial sales at wholesale
levels.

The index was set at 100 in the 2005 base year.

Earlier this month when releasing preliminary data, the Cabinet
Office repeated its recent assessment based on the coincident CI that
was adopted for October 2009 data, saying the index “shows Japan’s
economy is improving.”

That statement has been unchanged since the Cabinet Office revised
up its view for the second consecutive month in a row in October last
year.

Other details from the latest data follow:

The leading composite index, which measures the state of the
economy three months ahead: July revised 100.0 (-0.3 point vs.
preliminary -0.8 point at 98.2) vs. June revised 100.3 (+0.7 point), the
first drop in two months. In May the index showed the first drop in 15
months.

The lagging CI, which reflects economic conditions three months
ago: July revised 87.4 (+2.3 points vs. preliminary unchanged at 83.4)
vs. June revised 85.1 (+0.4 point), marking the third straight m/m rise.

The diffusion index (DI) of coincident indicators: July unrevised
50.0 vs. June revised 59.1. Through June 2010, the coincident DI stayed
above the key 50 level for the 14th straight month. In May 2009 it rose
above the threshold for the first time in 15 months.

A reading above 50 points indicates an economic expansion, while a
reading below 50 indicates contraction.

The diffusion index of leading indicators: July revised 36.4 (vs.
preliminary 30.0) vs. June revised 33.3. In June the index fell below 50
for the first time in 15 months. In April 2009, it rose above the key
level for the first time in 23 months.

The lagging DI: July revised 80.0 (vs. preliminary 75.0) vs. June
revised 41.7.

The composite index has replaced the diffusion index as a prime
indicator for business conditions.

The DI simply shows which way the economy is headed while the CI
also indicates how strong the changes in business conditions have been
or will be.

To signal a clear change in business cycles, the coincident
composite index’s seven-month moving average must show a cumulative
shift in the opposite direction by at least a full standard deviation in
the past month or three months (by at least 0.52 point), according to
the Cabinet Office’s criteria.

And to signal an improvement, the coincident CI’s three-month
moving average must show a cumulative shift in the opposite direction by
at least a full standard deviation in the past month or three months (by
at least 0.60 point).

In October 2009, the three-month moving average for the coincident
CI rose by 1.43 points from September after the seven-month moving
average of the coincident CI gained 1.14 points in September from
August, both clearing the hurdles.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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