— Japan July Watchers’ Forward-Looking Index 46.6 Vs June 48.3
— Japan Watchers’ Outlook Index Down For 3rd Month In Row
— Japan Govt Repeats: Econ Climate Tough But Move For Pickup Seen

TOKYO (MNI) – The Economy Watchers’ Survey index for current
conditions in Japan rose to 49.8 in July from 47.5 in June, posting the
first rise in three months thanks to heat waves that boosted sales of
air conditioners and refrigerators, the Cabinet Office said on Monday.

While consumers took advantage of the government’s reward program
for buying greener electronics and subsidies for purchases of energy
efficient vehicles, the expiry of the auto subsidies in September (tax
credits will continue) and the recent rise in the yen raised concern
about car sales and overall exports in the coming months, it said.

In the previous two months, sentiment was dented by slower durable
goods spending following rush purchases of flat-screen TVs in March
before the government tightened rules on the reward program. In May, bad
weather conditions also dampened consumer spending, causing the headline
index to mark the first drop in six months.

In July, the level of the index recovered to 49.8 marked in April,
which 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.

Meanwhile, the headline index stood below the key 50 level — the
dividing line between net positive and net negative responses to the
survey — for the 40th straight month in July.

The latest survey showed that “the economic climate is tough but
there are signs of an improvement,” the Cabinet Office said, repeating
its view adopted in its March report, when it upgraded is assessment for
the second straight month.

The survey was conducted between July 25 and July 31.

The 2.3-point rise in July was due to more people saying things
were getting “better” or “slightly better” and few people seeing
conditions as being either “worse” or “slightly worsen”. It followed a
0.2-point drop in June.

The 7.0-point slump 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) rose to 48.2 in July from
47.3 in June, up for the first time in three months.

This is because both orders and sales are picking up despite the
pressure to lower sales prices, the Cabinet Office said.

Meanwhile, the labor index fell to 55.5 in July from 56.3 in June,
posting the first drop in two months as companies in general remained
cautious about hiring regular workers, it said.

This index has shown ups and downs in recent months as the recovery
in wages and job creation is emerging only gradually, lagging the pickup
in production and exports.

The overall forward-looking index, which gauges conditions two to
three months ahead, fell to 46.6 in July from 48.3 in June, down for the
third straight month.

The outlook index was pushed down by fears that the expiry of the
subsidies for buying ecologically friendly vehicles will hurt
production, sales and employment in the car industry as well as concern
that the appreciation of the yen will undermine Japan’s export-led
recovery, said the Cabinet Office.

The index stayed below the key 50 level for 38 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 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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