TOKYO (MNI) – Japan’s coincident composite index (CI), which reflects
current business conditions, is expected to post a seventh straight drop in
October, indicating that the economy has already in a downward cycle, economists
said.

The Cabinet Office will release the Indexes of Business Conditions at 1400
JST on Friday, Dec. 7 (0500 GMT).

The October coincident CI will fall about 0.6 points to 90.9, a seventh
consecutive monthly drop after dropping 2.0 points in September, according to
economists polled by MNI.

In light of the continued weakness, the government is expected to revise
down its assessment based on the coincident CI for the second in a row, saying
the index shows the economy is “worsening.”

It said last month that the index showed the economy was at a “turning
point” for a slump, after having said in the previous month that the economy was
“marking time.”

But more economists believe that the current downturn will be relatively
short-lived.

“Even if the economy has been in a downward cycle after peaking in March,
it is expected to have hit bottom in October or November,” said Sumitomo Mitsui
Asset Management chief economist Akiyoshi Takumori.

Yoshiki Shinke, senior economist at Dai-Ichi Life Economic Research
Institute, said a 1.8% rise industrial output in October and the official
projection for -0.1% in November and +7.5% in December point to “the possibility
that the economy will hit bottom” in the October-December quarter.

A survey by the Ministry of Economy, Trade and Industry has shown that
industrial production, a coincident indicator of the economy, is expected to
rise 0.8% q/q in Q4, posting the first rise in three quarters.

Overseas economies are showing signs of a recovery.

The latest data showed that China’s manufacturing sector expanded for the
first month in 13 in November, the final reading of HSBC’s November PMI
indicated, helped by a rise in output and new export orders.

Chinese exports rose 11.6% on year in October, posting the highest rise
since +15.3% in May, boding well for Japan’s export-led economic recovery.

In addition, the yen has been softer, with dollar/yen stable above Y82.
Japan’s major manufacturers have made their business plans on the assumption
that the dollar will average Y78.95 in the current fiscal year to March 31.

A dollar rise by Y10 would raise Japan’s real GDP by 0.19 percentage point
in a 12-month period, according to the Cabinet Office.

The government last used the term “worsening” to describe the state of
Japan’s economy in a period between June 2008 and May 2009.

In June 2008, Japan’s exports posted their first year-on-year drop in 55
months and trade surplus shrank for the fourth straight month, reflecting
slowing growth in industrialized economies and rising energy and material costs.
Later that year, the global credit crisis triggered a plunge in demand.

Meanwhile, the government is expected to hold a meeting of economists in
order to pinpoint the peak and bottom of the current business cycle in the later
half of 2013, after the METI reviews the past industrial output figures in June
next year.

Downward cycles have averaged 16 months in the past. The shortest one
lasted for only four months between July and October 1951, according to the
Cabinet Office.

–MNI Tokyo Bureau; tel: +81 90-4818-1387; email: skodama@mni-news.com
–MNI Tokyo Bureau; tel: +81 90-4670-5309; email: msato@mni-news.com

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