December 11, 2012 – Japan Says Recession Has Started: An index of data reflecting the current state of Japan’s economy fell in October for the seventh straight month, indicating a high possibility that the country has already fallen into a recession. Pictured above, A crane at an industrial port in Tokyo; Japan’s export-led economy is suffering from a slowdown in China and recession in Europe.
The coincident composite index, whose 11 indicators include retail sales and employment data, declined 0.9 point from the previous month to 90.6, the Cabinet Office said Friday.
That led the government to downgrade its assessment of the indicator to “worsening”—indicating, in Cabinet Office talk, a high possibility that a recession is under way—from last month’s “signaling a turning point toward the downside.” It’s the first “worsening” assessment since April 2009.
“The trend is taking hold and there is a greater possibility the economy is in recession, judging from the coincident index,” a Cabinet Office official told reporters.
Japan’s export-led economy has been hit by Europe’s recession, a slowdown in the Chinese economy and continuing tension between Tokyo and Beijing over a territorial dispute.
The Cabinet Office assessment largely reinforces the view among private economists that the economy entered a recessionary phase earlier this year, although it will take more than a year for government-appointed economists to officially define the peak and the bottom of the latest economic cycle.
Many economists say the recession will likely be shallow and short, with the economy potentially starting to pick up by the end of the year.
Japan’s economic output was down a real annualized 3.5% in the July-September quarter, the sharpest drop since the aftermath of the March 2011 earthquake. Economists expect contraction again in the current quarter but a possible return to the positive in the first quarter of the 2013, supported by a recovery in overseas economies.
The country’s industrial production posted a surprise gain in October, the first rise in four months, helped by improvement in the electronics sector. The data also showed companies expect November output to be down 0.1% from October, but then rebound with a 7.5% rise in December.
The Cabinet Office official said the production data would be closely monitored to see how it actually fares.
In another more-encouraging sign looking ahead, October’s index of leading indicators, reflecting the future state of the economy, was up by 0.9 point from September.
“There have been signs of the economy bottoming out,” Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute. “It would not be surprising to see the decline in the coincident index coming to a halt in the near term.”
The data showed the coincident index in October had more positive contributors, including industrial production, than in September. Still, economists said the gloomy assessment of the current state of the economy will likely increase political pressure on the Bank of Japan to take additional easing steps even if there are signs of improvement in the outlook.
On Dec. 14, five days before its next policy-board meeting starts, the central bank will release the results of its quarterly Tankan business-sentiment survey—typically a factor in its decisions.
“It is difficult for the BOJ to take no action if current economic conditions are worsening,” said Junko Nishioka, chief economist at RBS Securities Japan. “Regardless of improvement in the outlook, the BOJ will be pressed to ease.”
The Master of Disaster