— Japan Sep Leading CI Revised -0.9 Pt M/M, 3rd Drop In Row

TOKYO (MNI) – Japan’s coincident composite index (CI), which
reflects current business conditions, fell a revised -1.2 points to
102.1 in September (vs. preliminary -1.3 pt at 102.0), posting the first
drop in 18 months, the Cabinet Office said on Wednesday.

It followed a 0.3 point rise to 103.3 in August.

The fall in the index in September was led by decreases in
producers’ shipments, retail sales and overtime hours worked among other
items.

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

Earlier this month when releasing preliminary data, 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.”

But it also noted that the three-month moving average of the
coincident CI posted the first drop in 17 months (down by a revised 0.10
point m/m), which “indicates a move toward a pause” in the current
modest economic recovery.

Other details from the latest data follow:

The leading composite index, which measures the state of the
economy three months ahead: September revised -0.9 point m/m at 98.6
(preliminary -0.6 point at 98.9) vs. August 99.5 (-0.5 point), the third
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: September revised +0.9 point m/m at 88.3 (preliminary +1.0 point at
88.4) vs. August 87.4 (-0.1 point), marking the first m/m rise in two
months.

The diffusion index (DI) of coincident indicators: September
revised 50.0 (preliminary 55.6) vs. August 70.0, staying at or above the
key 50 level for the 17th 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: September revised 36.4
(preliminary 30.0) vs. August 45.5, below 50.0 for four consecutive
months. 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: September revised 60.0 (preliminary 75.0) vs.
August 80.0.

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 pause in an economic expansion cycle, 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 0.68 point).

And 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 0.59 point), according to
the Cabinet Office’s criteria.

tokyo@marketnews.com
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