Mixed Data From Japan

Data coming out of Japan at the moment is really mixed at the moment. Really, as Claus Vistesen notes here, we are all busily holding our breath right now.

The latest news on the machinery orders front seems, on the face of it, quite positive on the surface:

Japan's machinery orders, a key indicator of corporate spending plans, rose at triple the pace economists predicted, reinforcing expectations the central bank will raise interest rates as soon as next month.

Orders climbed a seasonally adjusted 5.9 percent in May from the previous month, the Cabinet Office said in Tokyo today, a second monthly gain.

Manufacturing equipment orders rose at the fastest pace in almost a year, led by electrical machinery, transportation and textiles industries, signaling industrial production is likely to recover.

On the other hand industrial production, as Bloomberg also note, has been on a downward trend of late. Evidently we are in "wait and see" mode.

Meanwhile the Economy Watchers index has come in with a quite negative reading for domestic demand. The index, which gauges the strength of domestic demand via a survey of about 2,000 people who deal directly with consumers, fell to 46 points in June, a third monthly decline, the Cabinet Office said today in Tokyo. According to Bloomberg:

Slumping wages, higher taxes and concern over lost pension benefits may hobble consumers, whose spending makes up more than half of the economy. Japan's longest postwar expansion has been driven by business investment and exports of cars and electronics.

Wages have failed to grow so far this year, even with unemployment at a nine-year low. Average pay only rose 0.3 percent in 2006, after falling 10 percent between 1997 and 2005.

Last month's final rollback of tax rebates instituted by former Prime Minister Junichiro Koizumi will add about 14,000 yen ($110) to the average tax bill for a family of four. The Social Insurance Agency said in May that the mishandling of pension records could result in billions of yen in unpaid benefits.

Prospects for consumer spending may deteriorate in coming months, today's survey showed. The outlook index, a measure of expectations for the next two to three months, fell to 48.4 in June, below the optimism threshold of 50 for the first time this year, the Cabinet Office said.

Household spending rose 0.4 percent in May, the slowest gain so far this year.

What all this means is that the outlook on the upward blip in domestic consumption may now, once more, be headed south.So we have a two tier Japan economy right now, a domestic Japan, which really struggles to move forward, and an export sector which, for the time being, continues to March from strength to strength. At least this is how it all looks on the surface.