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Fears of Recession in Japan
World Economy

Fears of Recession in Japan

An index of data reflecting the current state of Japan’s economy fell in August, prompting a downgrade in the assessment of the indicator and suggesting the nation is on the verge of a recession.

The coincident composite index, consisting of 11 key indicators, including retail sales and industrial production, fell 1.4 points on month to 108.5, the Cabinet Office said Tuesday. That marked the first fall since June, Dow Jones Business News reported Tuesday.
The decline and assessment downgrade will likely add to calls for Prime Minister Shinzo Abe’s administration and the Bank of Japan to come to the aid of Japan’s sluggish economy, as the government weighs another sales-tax increase in 2015. Some economists have already suggested the economy may be on the verge of a recession.
The economy contracted sharply in the three months through June after the national sales tax rose to 8% from 5% in April, and households and businesses reined in spending. Recent data have painted a similarly bleak picture of the third quarter. Industrial output fell 1.5% on month in August to its lowest level in over a year. Household spending fell 4.7% from the previous year in the same month, the fifth straight month of decline.
The fall prompted the Cabinet Office to downgrade/upgrade its assessment of the index, saying the economy is “at a turning point” toward the downside, from “pausing.”
The Cabinet Office uses the indicator retrospectively to determine troughs and peaks in the business cycle. The language of the latest assessment is often used when the economy has peaked in preceding months, indicating the start of a recessionary phase.
Speaking in parliament earlier in the day, BOJ Gov. Haruhiko Kuroda said he acknowledged that the economy was taking time to shake off the impact of the sales-tax rise.
He added that if downside risks to the economic outlook materialize, the central bank would be ready to adjust policy.
Prime Minister Shinzo Abe also said in parliament that he thought the administration’s economic policies were “working well at this time.”
CAPTION
Household spending fell 4.7% from the previous year.

 

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