Japan Key Economic Index:

 https://mainichi.jp/english/articles/20210206/p2g/00m/0na/006000c

Article:

TOKYO (Kyodo) -- A key index reflecting the current state of the Japanese economy posted the largest fall in seven months in December, as recovery in production and shipments from a coronavirus-induced drop slowed, government data showed Friday.

The coincident index of economic conditions in the reporting month dropped 1.2 points from the previous month to 87.8 against the 2015 base of 100 for the second consecutive month of decline, according to the Cabinet Office's preliminary data.

The December result followed a 0.4 point decrease in the previous month and was the biggest since May when the index dropped 7.4 points to 71.7, the worst since April 2009, following Japan's first state of emergency declaration over the virus issued in early April. It was fully lifted in late May.

Ideas:

Usually a coincident index is a very reliable index that tries to show the current state of an economy. In this case production and shipments.

In Japan's case the level of productions as it increase might also show an increase in the level of shipments, most likely exports or globally and again in Japan's case for example car production and shipments.

In May the index was 71.7 while in December to 87.8. While 87.8 might not seem that good, at least it does show some continued recovery even though there was a surge in the virus situation in December.

Article:

"Solid improvement of indices for such segments as production and shipments had led the whole recovery after bottoming out in May, but they seem to have entered a lull since around November, helping cause the whole deterioration," a government official told reporters.

The office maintained its assessment that the economy is "bottoming out." It was revised upward in August from the view that the economy was "worsening," the most pessimistic of its five expressions.

The lackluster performances in production and shipments were not affected much by a third wave of virus infections since mid-November in Japan, the official added.

Ideas:

In normal times we might call this part of the "business cycle" but these are not normal times.

Yes maybe a "lull" or temporary decrease related to the pandemic situation, as late summer and early fall saw an increase in economic activity.

The idea of the economy "bottoming out" might have been a strategy to say, it is not going to get worse and most likely economic conditions will eventually begin to improve.

So if the pandemic situation didn't affect the lackluster performances in production and shipments, then what might have been the reasons?

Article:

Prime Minister Yoshihide Suga declared a second state of emergency over the virus spread in early January for Tokyo and some other areas and the government decided to extend it by one month for most of the areas from the initially scheduled lifting on Feb. 7, given that the pandemic was far from under control.

The leading index of economic conditions, forecasting the situation in the coming months, declined 1.2 points to 94.9 in the reporting month for the first deterioration in seven months.

The drop reflects weaker consumer confidence amid the resurgence of new virus cases but consumer sentiment could improve in line with the recent slowed pace of new infections, possibly making the leading index's downturn a short-term trend, the official said.

Ideas:

Consumer confidence is always a watched closely as consumer spending is always suspect even though some estimate the consumer spending is upwards of 60% of Japan's GDP.

So if consumer confidence is not where the BOJ wants it to be or should be it always a worrisome indicator meaning if consumer confidence is not what it should be then consumer spending is not where it should be.

The BOJ is always concerned with both deflation and inflation. It has consistently been targeting a 2 percent increase in inflation but the target has not bee reached yet, and to be fair and hones, perhaps it never will reach the target.

One reason, besides the pandemic as to why the 2 percent target might not be reached is because Japan has a larger than normal aged population and as such the aged tend to spend less than the younger age groups.

In one statistic it has been estimated that those in Japan between the ages of 20 to 65 spend as much or more than any other in the same age groups in OECD countries.

But the challenge is those above 65 are becoming more and more of the Japanese population which is affecting overall consumer spending in the Japanese economy.

Have a nice day and be safe!