Japan's Leading Index Drops, Signaling Growth to Cool
By Toru Fujioka
Jan. 11 (Bloomberg) -- Japan's broadest index of future economic activity dropped in November, indicating that growth in the world's second-largest economy may slow.
The leading index, which comprises measures such as machinery orders and consumer confidence, fell to 20 percent from 54.5 percent in October, the Cabinet Office said today in Tokyo. The result matched the median estimate of 26 economists surveyed by Bloomberg News. A number below 50 indicates the economy will cool in three to six months.
Japan's economy grew at the slowest pace in almost two years in the third quarter of last year after the biggest slump in spending by consumers in about a decade offset an expansion in business investment. Some economists expect the nation's corporate growth to eventually flow through to consumers.
``The index suggests the economy may cool early this year,'' said Yoshiki Shinke, an economist at Dai-Ichi Life Research Institute in Tokyo. ``But any slowdown would be limited by solid domestic demand.''
The yen traded at 119.85 per dollar at 3:59 p.m. in Tokyo, compared with 119.74 before the report was published.
The economy expanded at an annual 0.8 percent in the three months ended Sept. 30. Consumer spending, which represents more than half of gross domestic product, fell 0.9 percent. Since then, statistics showed Japan's retail sales rose less than expected and wages unexpectedly slipped in November. Average pay rose less than 10,000 yen per worker in the first 11 months of 2006.
Interest Rates
``Japan's economy is expanding, although we have to closely watch it,'' Itsushi Tachi, director of business statistics at the Cabinet Office, said at a briefing after the report was released. ``The bottom line is the economy is very solid.''
Bank of Japan Governor Toshihiko Fukui cited weak consumer spending as a reason for keeping the lowest interest rates among industrial nations unchanged in December and the central bank downgraded its assessment of household spending in its monthly report. The bank ends a two-day meeting to decide the level of interest rates on Jan. 18.
Still, household spending declined at the slowest rate in the year to date in November, suggesting private consumption may be rebounding. Hideo Hayakawa, the central bank's head of statistics, yesterday said there's a ``high possibility consumer spending will have a big rise in the fourth quarter.''
Yoichi Tanaka, a taxi driver based in central Tokyo, said he first noticed Japan's economic recovery at the end of last year when he was driving in the city's Ginza shopping district, which is noted for its restaurants, bars and pubs.
People `Spent More'
``People had a lot more year-end parties and spent more money,'' Tanaka said. ``I waited for a long time to see that.''
The Bank of Japan raised the key overnight lending rate among banks to 0.25 percent in July, its first increase in almost six years. Fukui has said the bank should raise rates gradually to prevent excessive business investment and asset-price bubbles.
``Consumer spending will slowly pick up and help drive economic growth,'' said Naoki Murakami, an economist at Goldman Sachs Japan Ltd. ``The economy won't slide into recession.''
The coincident index, which tracks indicators that gauge current economic activity, dropped to 50 percent in November from 75 percent in October, the Cabinet Office said. Three categories including industrial production climbed to a record, signaling the economy is growing, Tachi said.
Both the leading and coincident indexes will be revised on Jan. 18 to include more categories.
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