Key Index Shows Japan Maybe In Recessionary Phase

March 7, 2019 – The government today downgraded its assessment of a key indicator of economic trends, suggesting Japan may have already entered a recessionary phase rather than marking its longest growth streak since the end of World War II, as previously believed.

The Cabinet Office’s coincident index of business conditions for January was down 2.7 points from the previous month at 97.9 against the 2015 base of 100. It was the index’s third consecutive monthly decline, prompting the office to say that it was “signaling a possible turning point.” Prior to that, it had said conditions were “weakening.”

Toshimitsu Motegi, minister for economic and fiscal policy, said in January that the most recent growth phase from December 2012 had likely surpassed the Izanami Boom, a 73-month streak from 2002 to 2008.

The latest assessment, based on factors such as a slowdown in industrial output amid falling exports to China, casts doubt over that assertion. The economy likely peaked in autumn, the index showed.

It is not conclusive, however, as a government panel retroactively determines the length of economic cycles after examining more data, a process that can take more than a year.

A weakening economy would be a headache for Prime Minister Shinzo Abe, who has counted on the success of his “Abenomics” policy mix to maintain public support for his Liberal Democratic Party ahead of local and national elections this year.

Gross domestic product data had shown the world’s third-largest economy bounced back in the fourth quarter of 2018 after taking a hit from natural disasters including an earthquake and typhoon. On the other hand, corporate profits saw their first quarterly fall since 2016 and improvement in the job market also appears to have peaked.

“The economy is at a crossroad,” said Shinichiro Kobayashi, an analyst at Mitsubishi UFJ Research and Consulting Co. “At this point, it’s an even split between continuing to improve and worsening.”

“Exports are key, and the outcome of trade talks between the United States and China will be crucial,” he said.

The top government spokesman, Chief Cabinet Secretary Yoshihide Suga, said that, at least for now, the government is upholding its claim to the longest postwar growth phase.

Speaking at a regular press conference, Suga also said that the government will go through with a planned consumption tax increase from the current 8 percent to 10 percent in October unless it faces a crisis comparable to the 2008 global financial meltdown.

The last time the index was described as signaling a turn to the downside was in 2014, after a previous consumption tax hike caused private spending to plummet. The government panel, a seven-member group consisting of academics and private-sector economists, ultimately ruled that the economy had not in fact entered a recessionary phase at that point.

The leading index of business conditions, which predicts the trend in the coming months, deteriorated 1.3 points to 95.9 for the fifth consecutive month of decline.