Japan Leading Index Flashes Worst Signal Since Financial Crisis

(Bloomberg) --

A key indicator of Japan's economic outlook fell to its lowest level since the global financial crisis, offering an early official sign that the coronavirus is pushing Japan's economy into recession.

Japan's index of leading indicators dropped to 90.3 in January, the lowest since November 2009, the Cabinet Office said Friday.

The gauge, which combines a range of measures including new job postings, stock moves and consumer attitudes, typically shows which direction the real economy is headed in a few months' time. It's used by the government to call recessions.

The coronavirus began as a problem for supply chains and exports but has now hit households, who are staying away from stores and restaurants. For consumers, the virus is a double-punch following a recent sales tax hike that also made people less willing to shop.

A growing number of private sector economists are forecasting recession for Japan this quarter, after the economy shrank the most in more than five years in the last three months of 2019.

Separate figures from the government Friday showed the output gap, a measure of demand versus supply, fell into negative territory in the last quarter of 2019, dropping 1.4%.

A positive output gap has been a key data point used by the Bank of Japan to justify its argument that price momentum is solid, despite inflation running far below its 2% target. The BOJ makes its own calculation of the output gap, which should be released next month.

To contact the reporter on this story: Yuko Takeo in Tokyo at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Paul Jackson at pjackson53@bloomberg.net, Jason Clenfield

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