Tuesday, November 6, 2007

Japan's Leading Economic Index Drops to Decade-Low 0%

From Bloomberg this morning:

Japan's broadest indicator of the outlook for the economy fell to the lowest level in a decade, signaling growth may stall.

The leading index was zero percent in September, the Cabinet Office said today in Tokyo, matching the estimate of all 28 economists surveyed by Bloomberg News. A reading of below 50 indicates the economy may slow in three to six months.

The Bank of Japan cut its growth forecast last week, in part because of a decline in housing starts caused by a change in building regulations. Industrial production slid in September from a record, summer bonuses dropped for the first time in three years, export growth slowed and the jobless rate rose.

``The toll of the warning bell on the economic outlook just got a lot louder,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. ``This neatly underscores the complete loss of dynamism and vigor in the Japanese economy.''

Japan has had three recessions since the country's stock and property bubble burst in the early 1990s. The first 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.

Housing starts slumped 44 percent in September to the lowest level in four decades because of stricter rules for obtaining building permits. The Land Ministry last week said it would relax the regulations after industry criticism.

Credit Suisse Group cut its economic growth forecast for Japan twice in the past month, most recently to 1.3 percent, and said unemployment may rise should the housing downturn persist. The jobless rate increased to 4 percent in September from 3.8 percent and the ratio of job offers to each applicant fell.

Weakening labor conditions and wages may sap household buying power and sentiment, undermining the central bank's case for raising borrowing costs, the lowest among major economies. The Bank of Japan maintained the benchmark rate at 0.5 percent on Oct. 31, the same day it cut its growth prediction to 1.8 percent from 2.1 percent for the year ending March 31.

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