Japan's index of leading economic indicators was below 50 percent in May for the third month, suggesting that the nation may not avoid a recession as companies such as ball-bearing maker Minebea Co slash jobs to cut costs.
The index, which measures job offers, consumer confidence and other indicators of future activity, rose to 44.4 percent from 30 percent in April, Japan's Cabinet Office said in Tokyo. A reading below 50 percent signals a contraction in three to six months.
Japan's economy probably shrank in the second quarter as consumption and exports fell, economists said. Today's report suggests that expectations of a recovery fueled by an improvement in the central bank's Tankan gauge of business confidence this week may be dashed.
"Exports will remain weak and consumption is also faltering," said Ryota Sakagami, an economist at Nomura Research Institute, who said the economy probably shrank in the second quarter.
Japanese 10-year bonds rose, ending a five-day plunge sparked by a stock market rally and the improvement in the central bank's Tankan survey of business confidence. Some investors said yields at more than triple the levels of a month ago are attractive because of falling consumer prices.
The yield on the No. 251 bond, which carries a 0.9 percent coupon and matures in 2013, fell 5.5 basis points to 1.045 percent at 4:02pm in Tokyo, according to Japan Bond Trading Co. The bond's yield earlier soared to 1.4 percent, the highest since June 5 of last year and more than three times the record low of 0.43 percent touched on June 11. A basis point is 0.01 percentage point.
A separate report released today showed household spending fell 1.6 percent, seasonally adjusted, in May from April. Near-record unemployment of 5.4 percent and falling wages are hurting consumer spending, which makes up about 55 percent of Japan's economy. Minebea, the world's biggest maker of miniature ball bearings, said it would fire 170 workers to cut costs.
The index was expected to rise to 33 percent, according to the median forecast of 6 economists surveyed by Bloomberg News.
The leading index percentages are derived by dividing the number of positive components by all available components.
The index "continues to show weakness," said Yoshihiko Senoo, head of research at the government's Economic and Social Research Institute, which published the report.
The coincident index, which tracks factory production, power use by large manufacturers and department store sales to measure current economic performance, was at 61.1 percent, compared with 15 percent in April, today's report showed.
Japan's economic growth slowed to 0.1 percent in the first quarter from 0.4 percent in the previous period as companies restrained investment and exports fell. Exports probably slid further in the second quarter as the spread of a deadly virus in Asia cut demand for Japanese goods such Sony Corp video game consoles, economists said.
This week's Bank of Japan quarterly Tankan survey suggests that confidence among the nation's largest manufacturers is improving, prompting them to raise their investment plans and boosting prospects for growth. Large manufacturers were the least pessimistic in more than two years, according to the survey.