— Japan May Econ Watchers’ Index At 47.7, Still 3-Year High
— Japan May Watchers’ Forward-Looking Index 48.7 Vs Apr 49.9
— Japan Watchers’ Outlook Index Also Posts 1st M/M Drop In 6 Mths
— Japan Govt Repeats: Econ Tough But Move For Pickup Seen

TOKYO (MNI) – The Economy Watchers’ Survey index for current
conditions in Japan slumped to 47.7 in May from 49.8 in April, marking
the first monthly drop in six months, as bad weather conditions dampened
consumer spending, the Cabinet Office said on Tuesday.

But the level of index was still at a three-year high. May’s 47.7
was the highest since 49.7 marked in April 2007 while April’s 49.8 was
the highest since 50.8 in March 2007.

Three years ago, the Japanese economy was still in its longest
post-war expansion period that ended in October 2007.

In May the headline index stood below the key 50 level — the
dividing line between net positive and net negative responses to the
survey — for the 38th straight month.

The latest survey showed that “the economy is in tough condition
but there are signs of an improvement,” the Cabinet Office said,
repeating its view from the previous survey. In its March report, the
government upgraded is assessment for the second straight month.

“Despite lingering effects of the tax breaks for purchases of
low-emission vehicles, the household index fell as low temperatures and
heavy rainfalls in the second half of the month hampered spending and
hurt sales of seasonal goods,” the Cabinet Office said.

It also noted that sales of flat-screen TVs fell compared to high
sales in March, when people rushed to stores before changes were made to
the government’s reward program for buying greener consumer electronics.

The survey was conducted between May 25 and May 31.

The 2.1-point fall in May was due to fewer people saying things
were getting “slightly better” and more people seeing conditions as
being either unchanged or “slightly worse.” It followed a 2.4-point rise
in April.

The 7.0-point drop in November 2009, which is believed to have been
caused by the government’s ill-timed announcement that Japan was back in
mild deflation, was the largest fall since the survey began in August
2001.

The headline index hit a record low of 15.9 in December 2008 at the
height of the global financial crisis, but posted its first gain in 10
months in January 2009 as more people thought conditions were unchanged
after deteriorating drastically in previous months.

The index then rose for seven months in a row but bad weather
conditions and the pandemic of swine flu hurt sentiment in August 2009.
It fell in October and November last year on fears of a worsening
deflation after rising briefly in September.

In the latest month, the business index (manufacturers and
non-manufacturers serving other businesses) posted the first drop in
five months because while both orders and sales improved, it was hard
for firms to justify passing along higher raw material costs, the
Cabinet Office said.

The labor index also posted the first drop in six months because
companies remain cautious about hiring regular workers, although there
had been moves among some firms to start hiring people.

The overall forward-looking index, which gauges conditions two to
three months ahead, fell to 48.7 in May from 49.9 in April, showing the
first month-on-month drop in six months.

The index stayed below the key 50 level for 36 months in a row.

In January 2009 the index rebounded to 22.1 from a record low of
17.6 hit in December 2008.

The outlook index slipped on fears that weak share prices may
depress consumer sentiment and a forecast cool summer for northern Japan
will hurt clothing sales, said Cabinet Office.

This is despite expected stimulus effects of the government’s new
program to pay family allowances for children until they finish junior
high school (ninth grade) and continued tax breaks for buying greener
cars, it said.

Companies expect orders to continue growing but concerns about a
higher yen and a downturn in the European economy emerged last month,
clouding the outlook, it added.

The survey outcome is monitored closely by the Bank of Japan as it
appears to reflect retail sector sentiment more accurately than some
other data.

The watchers’ index gauges whether respondents with jobs most
sensitive to economic conditions — taxi and truck drivers, department
store sales staff and restaurant and shop owners — believe economic
conditions have improved or worsened from three months before.

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

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