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Economy

Japan's economic index slips for third consecutive month

As economists watch government's coming assessment, some point to possible recession

Japanese manufacturers are shipping fewer goods to China, a trend that is weighing on Japan's economy.   © Reuters

TOKYO -- Japan's latest composite index of business conditions, released on Thursday, illustrates how China's economic slowdown is impacting Japan.

The January reading decreased by 2.7 points from December to 97.9 points, according to Japan's Cabinet Office. The index has fallen now for three consecutive months, reaching its lowest level since June 2013.

The government calculates the index based on production, employment, investment and consumption statistics, as well as other inputs. The index has a lot of weight in government decisions as to whether the economy is growing or has gone into recession. The focus now is on how the government will assess the economy given the new reading.

Some economists and analysts are suggesting that Japan's economy has fallen into recession. But others are wary of making such a pronouncement, saying a determination can be better made based on February production and export statistics, due out later in this month.

Of the nine statistics used to calculate the composite, all seven measurements already disclosed as preliminary figures negatively impacted the index, most notably production and shipment statistics. Japanese producers -- including industrial robotics and semiconductor makers -- are suffering from weak exports amid China's economic slowdown.

Manufacturer production levels weigh heavy on the composite.

The overall assessment of the index was downgraded from the previous month's "weakening" to "signaling a possible turning point," the middle of five stages. The same expression was used in November 2014, when a consumption tax increase was negatively impacting consumer behavior.

The expression "signaling a possible turning point" suggests an economic trend that peaked several months earlier. However when the same assessment was used from August to November 2014, the Composite Index Working Team, an organization that judges how long economic business trends last, assessed that the economic recovery was ongoing.

During the same period, the government's monthly economic reports maintained that the Japanese economy was undergoing a "moderate recovery." At the same time, it did some hedging with phrases like "weakness can be seen."

Said a Cabinet Office official, "The government will make its economic assessment from on overall perspective."

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