— Japan Aug Prelim Leading CI -0.9 Pt M/M, 2nd Drop In Row
— Cabinet Office Repeats: CI Shows Japan Economy Improving

TOKYO (MNI) – Japan’s coincident composite index (CI), which
reflects current business conditions, rose a preliminary 0.5 point to
103.5 in August, posting the 17 straight monthly rise, the Cabinet
Office said on Thursday.

It followed a 0.6 point rise to 103.0 in July.

The rise in the index in August was led by increases in large power
consumption, the ratio of job offers to job seekers and commercial sales
at both wholesale and retail levels, offsetting declines in producers’
shipments, industrial output and producers’ investment goods shipments
(excluding transport equipment).

The index was set at 100 in the 2005 base year.

The Cabinet Office repeated its recent assessment based on the
coincident CI that was adopted for October 2009 data, saying the index
“shows Japan’s economy is improving.”

Other details from the latest data follow:

The leading composite index, which measures the state of the
economy three months ahead: August 99.1 (-0.9 point m/m) vs. July 100.0
(-0.3 point), the second straight m/m drop. In May the index showed the
first drop in 15 months, followed by a rise in June.

The lagging CI, which reflects economic conditions three months
ago: August 87.8 (+0.4 point m/m) vs. July 87.4 (+2.3 points), marking
the fourth straight m/m rise.

The diffusion index (DI) of coincident indicators: August 77.8 vs.
July 50.0, staying at or above the key 50 level for the 16th straight
month. In May 2009 it rose above the threshold for the first time in 15
months.

A reading above 50 points indicates an economic expansion, while a
reading below 50 indicates contraction.

The diffusion index of leading indicators: August 40.0 vs. July
36.4. In June the index fell below 50 for the first time in 15 months.
In April 2009, it rose above the key level for the first time in 23
months.

The lagging DI: August 75.0 vs July 80.0.

The composite index has replaced the diffusion index as a prime
indicator for business conditions.

The DI simply shows which way the economy is headed while the CI
also indicates how strong the changes in business conditions have been
or will be.

To signal a clear change in business cycles, the coincident
composite index’s seven-month moving average must show a cumulative
shift in the opposite direction by at least a full standard deviation in
the past month or three months (by at least 0.52 point), according to
the Cabinet Office’s criteria.

And to signal an improvement, the coincident CI’s three-month
moving average must show a cumulative shift in the opposite direction by
at least a full standard deviation in the past month or three months (by
at least 0.60 point).

In October 2009, the three-month moving average for the coincident
CI rose by 1.43 points from September after the seven-month moving
average of the coincident CI gained 1.14 points in September from
August, both clearing the hurdles.

tokyo@marketnews.com
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