TOKYO (MNI) – Japan’s Cabinet Office is changing the calculation
method for its composite indexes next month, which will prompt it to
revise down its assessment of the current economic climate, the
government’s panel of economists said Wednesday.

The change will take effect on Nov. 7, when the Cabinet Office
releases preliminary leading, coincident and lagging composite indexes
for September.

When the change takes place, the Cabinet Office will say the
coincident composite index, which is used to assess the current economic
condition, shows the economy “has stopped falling” from June to August,
an assessment weaker than the current view that it is “improving.”

The government will replace some components of the indexes for the
first time since November 2004 in order to evaluate economic conditions
more precisely.

For the coincident CI, capacity utilization will be replaced by
shipments of consumer durable goods, overtime working hours among
manufacturers will change to overtime working hours for all industries,
and nominal sales at small businesses will switch to real shipments by
small businesses.

The government will also try to read short-term drastic slumps and
rebounds in the economy more accurately when smoothing out sharp
fluctuations.

Currently the impact of major events such as a global financial
crisis and a large-scale disaster is left out of the data calculation as
being too drastic a shift in the economy.

In the most recent case, by leaving out the drag from the March
earthquake disaster, the level of Japan’s economic activity has been
overestimated.

For instance, the coincident CI for August, the latest month
available, will be revised down to 90.3 under the new formula from 107.4
now.

Under the existing formula, the coincident CI hit a record high of
107.4 in both June and August this year. But under the new method, the
index for July and August will become the recent high but stay below a
revised record high of 105.6 marked in June 2007.

Hiroshi Yoshikawa, who chairs the government panel, told reporters
that even under the new data formula, the panel believes that “the
economy is currently expanding.”

He added that one member said the economy may have been in a soft
patch.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **

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