Japan Leading Indicator November 2007

Japan's broadest indicator of future economic activity was down again this month, the fourth cosnecutive weak showing, suggesting that the what has been the longest expansion in more than 60 years may well now be coming to an end. The leading index was at 10.0 percent in November, the Cabinet Office said today in Tokyo. A reading of below 50 signals slower growth in the next three to six months.



Weak domestic demand and consumer consumption as Japan's population and workforce steadily age leave the economy increasingly dependant on export growth and overseas demand. To date the slowdown in US demand has been comensated by growth in Europe and China, but now there are clear signs the Chinese authorities really will have to throw the brake on growth this year as iflation gets steadily out of control, while the slowdown in Europe is now gathering speed more rapidly than the one in the United States. Goldman Sachs Group today cut its estimate for Japanese growth in 2008 arguing that slower export demand has put the risk of a recession in Japan at a "danger level". Goldman cut their growth forecast to 1 percent from 1.2 percent and said the Bank of Japan will have to forego any interest rate increases until next year. I would go further. I would say that a recession in Japan is now a foregone conclusion. The only real question is how deep and for how long. 1% growth may well be on the optimistic side, and I would start out at 0.5% and subject to downward revision. On the BoJ, as Claus says, it isn't so much that they won't raise as when are they likely to cut, and when will we be back (yes, that dreaded word) to ZIRP.

Japan has had three recessions since the country's stock and property bubble burst in the early 1990s. The first lasted 32 months from March 1991 to October 1993, while the second dragged on for 20 months from June 1997 to January 1999. The most recent recession was in the 14 months from December 2000, following the bursting of an information-technology boom. So all the indiactions are that this recession will not be a short affair. It needs to be borne in mind that each time round now Japan's population is older, and the fragility of the underlying situation proportionately greater.

As Claus was indicating in his recent post, there is probably now going to be a certain monotony in the data here, as it all moves - sometimes more slowly and sometimes more quickly - in the same direction. The centre of action is now likely to move to the political stage and to following how the Japanese population react to yet another disappointment.

``We project weaker-than-expected growth in the first half of 2008 owing to an inevitable, moderate slowdown among emerging economies,'' said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs in Tokyo.

India Inflation December 22 2007

India's inflation held below the central bank target for a sixth straight month as the government continued to keep a cap on fuel prices despite the fact that global crude oil surged to a record. Wholesale prices rose 3.5 percent in the week ended Dec. 22 from a year earlier, faster than the previous week's 3.45 percent gain, the Ministry of Commerce and Industry said today in New Delhi.




The Indian government may raise auto fuel prices by the end of January for the first time in 18 months according to Oil Minister Murli Deora yesterday. That could reignite price pressures and prompt the central bank, which targets 5 percent inflation, to keep its benchmark interest rate at a 5 1/2-year high at its Jan. 31 monetary-policy meeting.

India imports almost three-quarters of its energy needs, and has not allowed increases in fuel prices even as crude oil prices have risen 79 percent from a year ago.

The government caps gasoline and diesel rates to help keep inflation down and protect the poor, who make up half the country's 1.1 billion people. Gasoline and diesel prices were last changed on Feb. 15, when they were cut for the second time in 2 1/2 months. Cooking gas prices haven't been raised since November 2004 and kerosene since April 2002.

Inflation in the third week of December rose as the index of fuels, with 14.2 percent weight in the inflation basket, rose 0.5 percent and the index for manufactured products, including sugar, cement and edible oils, rose 0.1 percent.

Rupee Near Record

The rupee climbed again today to reach its highest level in almost a decade as the benchmark stock index rose to a record, raising expectations global funds will buy more local equities. The rupee gained for the fourth successive day after Citigroup and Deutsche Bank said in research reports that the Bombay Stock Exchange's Sensitive Index, or Sensex, will add to gains for the seventh year in a row as a near-record pace of economic growth boosts company earnings. Prime Minister Manmohan Singh today said ``conditions are favorable'' for the nation to sustain a growth rate of between 9 percent and 10 percent in the next five years.

The currency gained to 39.275 against the dollar at the 5 p.m. close in Mumbai, the highest since Feb. 26, 1998, according to data compiled by Bloomberg. It closed at 39.295 yesterday. The rupee, which last year posted the biggest annual gain since at least 1974, may reach 39 this month according to many observers.