Japan Government Says Economy `Deteriorating' for Fourth Month

By Keiko Ujikane

Nov. 6 (Bloomberg) -- Japan's government said for a fourth month that the world's second-largest economy is ``deteriorating'' as the global financial crisis takes its toll.

The coincident index rose to 100.8 in September from a revised 100.7 in August, the Cabinet Office said today in Tokyo. The median estimate of 18 economists surveyed by Bloomberg News was for a gain to 100.8. ``Deteriorating'' signals ``the chance of a recession is high,'' the government said.

Japan's six-year economic expansion has already ended, according to economists, as demand for Sony Corp. televisions and Nissan Motor Co. cars weakens in the wake of the worst financial turmoil since the Great Depression. The Bank of Japan last week cut interest rates for the first time in seven years to help an economy that it expects will barely grow this year.

``The slowdown in exports since the second quarter has triggered a negative demand shock of falling production, declining income and reduced spending,'' said Ryutaro Kono, chief economist at BNP Paribas in Tokyo. ``The economy will likely contract in the fourth quarter and the first quarter of 2009.''

The coincident index is a composite of 11 statistics including production, the ratio of jobs to applicants and retail sales. The three-month moving-average of the index, which the government uses to make its monthly assessment, fell to 101.7 in September from 102.2 in August, today's report showed.

Bank of Japan

The central bank lowered the key overnight lending rate to 0.3 percent from 0.5 percent last week. It also slashed its growth forecast for the year ending March to 0.1 percent from 1.2 percent predicted in July.

Evidence that the economy is faltering mounted in the past month as the global financial crisis deepened. The Nikkei 225 Stock Average plunged 24 percent in October, the worst monthly decline ever.

Industrial production tumbled for a third quarter in September. Retail sales dropped for the first time in 14 months and household spending fell for a seventh month.

Japan's economy expanded at a 0.2 percent annual rate last quarter, according to the median estimate of 15 economists, after it shrank in the previous three months. The Cabinet Office will publish the gross domestic product data on Nov. 17.

Companies are also suffering from the yen's 13 percent surge against the dollar this year and 28 percent gain versus the euro. Sony and Nissan are among the exporters that cut their profit forecasts in recent weeks because of the stronger Japanese currency and slowing overseas sales.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net