Japan Index of Leading Indicators October 2007

Well, perhaps the only positive thing that can be said about the latest release from the Cabinet Office of the Index of Leading Indicators is that it is above last months zero reading. The index, which is Japan's broadest indicator of the outlook for the economy was in contraction mode for a third consecutive month, a signal that growth may well be stalling. The leading index was at 20 in October, and any reading below 50 indicates the economy may slow three to six months ahead.





The leading index is derived from 12 monthly indicators including housing starts, stock prices and other statistics that are a barometer for future economic activity. For a component to be negative, it has to be weaker than it was three months ago.

Housing starts dropped 35 percent in October, the fourth monthly drop, after a rule change to make building approvals more difficult choked off applications just as the sub-prime credit crunch was gaining global momentum. Housing investment was the biggest drag on Japan's growth in the three months ended on Sept. 30, and looks like continuing to be one in the present quarter. At the same time household spending growth slowed to 0.6 percent in October from 3.2 percent in September.


Just for the record it is worth reminding ourselves that Japan has had three recessions since the stock and property market bubbles burst in the early late 1980s early 1990s. The first of these lasted 32 months from March 1991 to October 1993, and the second dragged on for 20 months from June 1997 to January 1999. The most recent recession was in the 14 months from December 2000, when the bursting of an information-technology bubble damped exports and capital investment. So remember, Japanese recessions, should we ultimately get one, are now long and hard affairs.