Japan's longest post-war economic expansion may be over, government figures showed yesterday, as an index of indicators including industrial output and corporate profits sank in June.
The data reinforced the market view that the Bank of Japan is likely to sit tight on monetary policy for the rest of the year in view of a global economic slowdown and high energy costs.
"The coincident index underscored the possibility that the economy peaked in the final quarter of last year and may have entered a recession in the economic cycle," said Junko Nishioka, economist at the Royal Bank of Scotland.
The Cabinet Office said the economy was "deteriorating", adding that this was a provisional judgment that the economy is likely in a recession.
Its assessment of the index is decided automatically based on moves in the coincident index over the last few months.
Tokyo defines a recession as the period between the peak and trough of the economic cycle, which varies from the normally used definition of two straight quarters of economic contraction. The index of coincident economic indicators fell 1.6 points to a preliminary 101.7 in June, the government said
The coincident index comprises data including industrial production, retail sales and companies' operating profits.
The index of leading economic indicators fell 1.7 points to a preliminary 91.2 in June from 92.9 in May.
Weak industrial output in June was a key reason behind the decline in the indexes. Output fell two per cent in June from May, and April-June marked the second straight quarter of decline.
Many economists say Japan's economic cycle likely entered a downward phase late last year or early this year after enjoying its longest postwar expansion since early 2002.
"Japan's economy most likely peaked in October-December last year and has entered a recession in its economic cycle," said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute. "The question now is how long and deep the downturn will be."
Economics Minister Kaoru Yosano said last week that the economic cycle may have turned south late last year.
The Cabinet Office said in June that data suggested the economy may have experienced a change in phase after its longest postwar expansion cycle. The change in the Cabinet Office's view adds to the possibility that the government may cut its assessment of the economy in its monthly economic report on Thursday as exports slow and rising raw material prices erode corporate profits and dampen consumer sentiment.