— Japan May Prelim Leading CI -3.0 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, fell 0.1 point to 101.2 in May,
posting the first drop in 14 months after a 0.8 point rise to 101.3 in
April, the Cabinet Office said on Tuesday.

The decline in the index was led by drops in producers’ investment
goods shipments (excluding transport equipment), commercial sales at
both retail and wholesale levels, industrial output and large industrial
power consumption.

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 May data follow:

The leading composite index, which measures the state of the
economy three months ahead: May 98.7 (-3.0 points) vs. April 101.7 (-0.2
point). It was the second straight m/m drop after showing the first drop
in 14 months in April.

The lagging CI, which reflects economic conditions three months
ago: May 83.6 (+0.7 point) vs. April 82.9 (-1.9 points), showing the
first rise in two months.

The diffusion index (DI) of coincident indicators: May 88.9 vs.
April 95.0. The coincident DI was above the key 50 level for the 13th
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: May 55.0 vs. April 90.9.
In May 2009. The index stayed above 50 for the 14th straight month. In
April 2009, it rose above the key level for the first time in 23 months.

The lagging DI: May 50.0 vs. April 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
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