Japan
Japan's economy is set to slow, the government's broadest indicator of future growth showed, as the nation's factories trim output in anticipation of a worsening U.S. slowdown.
The leading index fell to 30 percent in January, below the threshold of 50 that signals growth will slow in the next three to six months, the Cabinet Office said today in Tokyo, matching the median estimate of 26 economists surveyed by Bloomberg News. The December number was revised to 50 from 45.5.
Consumer confidence at a four-year low suggests household spending is unlikely to make up for a drop in export demand as the U.S. heads for its first recession since 2001. Business investment fell at the fastest pace in five years last quarter, the Finance Ministry said yesterday, signaling the government will have to trim its gross domestic product estimate next week.
“We don't know whether the term recession applies to current situation, but it's getting close,'' said Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp. in Tokyo. “At the very least we're looking at a full-fledged slowdown.''
The yen was little changed, trading at 103.90 per dollar at 2:25 p.m. in Tokyo from 103.91 before the report. The leading index was below 50 for five of the six months to January.
Capital spending, used by the government to revise GDP estimates, fell for a third quarter in the three months ended Dec. 31, yesterday's report showed. Industrial production fell at the fastest pace in a year in January and machinery orders, an indicator of spending plans, slid for two months to December.
Growth Revision
The decline in business investment will cause annualized fourth-quarter growth to be cut to 2.3 percent from the preliminary 3.7 percent, according to the median estimate of 16 economists surveyed by Bloomberg News. The Cabinet Office will release the revised GDP figures on March 12.
“The issue isn't the fourth quarter, that's past history,'' said Bank of America's Fujii. “The issue is what happens from here same day payday loans. We're looking for growth close to zero in the first half of the year.''
The risk of a slowdown has investors betting the Bank of Japan will cut interest rates before the end of the year. Traders see a 61 percent chance the bank will lower the key rate from 0.5 percent by December, according to calculations by JPMorgan Chase & Co.
Governor Toshihiko Fukui, whose term at the central bank ends March 19, heads his last policy meeting today and tomorrow. The bank will keep its overnight lending rate at 0.5 percent at the conclusion of the meeting, according to all 40 economists surveyed by Bloomberg News.
U.S. Recession
Goldman Sachs Group Inc. and Morgan Stanley forecast the U.S., Japan's largest market, will fall into a recession this year. Growth in emerging economies, where Japan ships more than half its exports, will slow to 6.9 percent this year from 7.8 percent in 2007, according to the International Monetary Fund.
Should exports and capital spending falter, household spending is unlikely to pick up the slack.
Consumer confidence slid in January to the lowest level since June 2003, as households paid higher prices for gasoline and food amid sluggish wage growth. Average wages fell 0.7 percent in 2007, the steepest decline in three years.
Hiring, which has been supporting consumption in the absence of pay growth, is showing signs of slowing. Applicants outnumbered job offers for the second month in January.
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.
The coincident index, a measure of the current state of the economy, fell to 22.2, the second time it's been below 50 in 10 months. The government lowered the assessment of the index today.