— Japan Aug Watchers’ Index 45.1 Vs July 49.8, 1st Drop In 2 Mths
— Japan Aug Watchers’ Forward-Looking Index 40.0 Vs July 46.6
— Japan Watchers’ Outlook Index Down For 4th Month In Row
— Japan Govt Downgrades View: Move For Econ Pickup Moderate

TOKYO (MNI) – The Economy Watchers’ Survey index for current
conditions in Japan slumped to 45.1 in August from 49.8 in July, posting
the first drop in two months as record heat waves left deserted shopping
streets and dampened autumn goods sales, the Cabinet Office said on
Wednesday.

Sales of beverages and summer goods, including air conditioners,
remained strong, but the recent rise in the yen against major currencies
raised concerns about Japan’s export-led economic recovery, hurting the
overall sentiment for August, it said.

The government downgraded its assessment of the sentiment for the
first time in nine months since November 2009, saying the latest survey
showed that “while the economic climate remains tough, movements for
picking up are slowing.”

This compares with the previous statement that “the economic
climate is tough but there are signs of an improvement,” a view adopted
in the March report as a result of a second consecutive upgrade.

In July, sentiment was up for the first time in three months,
thanks to robust sales of beverages, air conditioners and refrigerators
amid record high temperatures in many cities. In May, bad weather
conditions dampened consumer spending, causing the headline index to
mark the first drop in six months.

Consumers have generally taken advantage of the government’s reward
program for buying greener electronics and tax breaks for purchases of
energy efficient vehicles.

But as the government finishes providing auto subsidies this month
(tax credits will continue), there is a concern that it will hurt sales
and production of passenger cars and trigger job cuts, the Cabinet
Office said.

In August, the index fell to the lowest level in six months since
42.1 marked in February.

In July and April this year, the index hit 49.8, the highest level
in about three years 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 41st straight month in August.

The survey was conducted between Aug. 25 and Aug. 31.

The 4.7-point fall in August was due to many more people saying
things were getting “slightly worse” and fewer people seeing conditions
as being “slightly better” or “unchanged.” It followed a 2.3-point rise
in July.

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) slumped to 42.7 in August
from 48.2 in July, the first drop in two months.

Meanwhile, the labor index fell to 51.3 in August from 55.5 in
July, marking the second straight monthly drop.

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, tumbled to 40.0 in August from 46.6 in July, down
for the fourth straight month as the strong yen and weak share prices
threatened to wreck Japan’s modest economic recovery.

The index stayed below the key 50 level for 39 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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