— Japan July Prelim Leading CI -0.8 Pt M/M, 1st Drop In 2 Months
— Cabinet Office Repeats: CI Shows Japan Economy Improving

TOKYO (MNI) – Japan’s coincident composite index (CI), which
reflects current business conditions, rose 0.5 point to 101.8 in July,
posting the second straight monthly gain after rising 0.1 point in June,
the Cabinet Office said on Tuesday.

In May the index showed the first drop in 14 months, down by 0.1
point.

The rise in the index in July was led by increases in small
manufacturer sales, the ratio of job offers to job seekers, large power
consumption, and retail sales, offsetting declines in producers’
investment goods shipments (excluding transport equipment) and overtime
hours worked at factories.

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.”

That statement has been unchanged since the Cabinet Office revised
up its view for the second consecutive month in a row in October last
year.

Other details from the latest data follow:

The leading composite index, which measures the state of the
economy three months ahead: July 98.2 (-0.8 point) vs. June 99.0 (+0.4
point), the first drop in two months. In April the index showed the
first drop in 14 months, followed by another fall in May.

The lagging CI, which reflects economic conditions three months
ago: July 85.7 (+2.2 points) vs. June 83.4 (unchanged).

The diffusion index (DI) of coincident indicators: July 50.0 vs.
June 55.0. Through June, the coincident DI stayed above the key 50 level
for the 14th 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: July 30.0 vs. June 27.3.
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: July 75.0 vs. June revised 20.0.

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
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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