Japan’s Economy: Indexes of Business Conditions show the economy may hit the bottom

COVID- 19 hurt heavily consumers’ sentiment and corporate activities

On July 7, the Japanese cabinet office announced preliminary figures of Indexes of Business Conditions (CI) for May 2020. The coincident index, which shows the current state of the economy, deteriorated significantly to 74.6, down 5.5 points from the previous month for the fourth consecutive month of decline. 

The index has dropped to the lowest level in 10 years and 10 months since July 2009, the aftermath of the global financial crisis. People refrained from going out and corporate activities were stagnant hampered by a nationwide state of emergency over the coronavirus infection. 

Decline in economic activities and worsening employment in addition to depressed industrial goods shipment amid production adjustments were affected the index significantly. 

The cabinet office maintained its assessment that the Japanese economy is "worsening," using the most pessimistic expression for the 10th straight month. It is the longest stagnating period since June 2008 when the assessment of "worsening" continued for 11 consecutive months.

Economy resumed amid second wave concern

On the other hand, the leading index, which shows the economy in the next few months, rose to 79.3, up 1.6 points from the previous month. It is the first time in three months for the index to turn upward. 

The consumer confidence has improved reflecting expectations for a recovery in business sentiment following the resumption of economic activities. Recent bounce back in Tokyo Stock Exchange market also contributed to improve future outlook. 

In addition, the Japanese government has relaxed rules on big events from July 7, 2020 in an attempt to seek rebalancing economic resumption and infection prevention. It is expected that Japan’s economy may start bottoming out although the government watch cautiously recent resurgence of infection in large cities such as Tokyo.