UPDATE 1-Japan says index suggests economy in recession

Fri Dec 7, 2012 2:52am EST

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*  Coincident index falls for 7th straight month in October
    *  Govt cuts view on index, saying it shows deterioration
    *  Govt says "high possibility" for Japan's recession


    By Kaori Kaneko
    TOKYO, Dec 7 (Reuters) - Japan's government said on Friday
that there was "a high possibility" that the economy has slipped
back into a recession after an index of economic indicators fell
for a seventh straight month in October.
    The world's third-largest economy shrank in the September
quarter for the first time since last year, adding to signs that
slowing global growth and tensions with China are nudging it
into recession.
    The index of coincident economic indicators fell a
preliminary 0.9 point in October from the previous month, the
Cabinet Office said on Friday.
    The coincident index consists of 11 indicators such as
industrial output, employment and retail sales data.
    The government said the index showed deterioration, lowering
its view for a second consecutive month. 
    The last time the government used the expression 
"deterioration" in its assessment of the coincident index was
between June 2008 and April 2009.  It later said the economy was
in recession, which is popularly defined as two consecutive
quarters of contraction.
    But analysts said the slowdown in the trade-reliant economy
may have bottomed out. 
    "Japan's economy is probably hitting bottom in November or
December. So the nation's recession is expected to be shallow
and short-lived, " said Junko Nishioka, chief economist at RBS
securities.
    "Factory output-related figures show positive numbers, which
are seen to spread to wider in the economy. The economy will
likely return to growth next year."
    One positive sign was the index of leading economic
indicators, which showed a rise of 0.9 percent from September.
The index compiles data such as the number of job offers and
consumer sentiment and a gauge of the economy a few months
ahead.
    Japan will announce its revised third quarter GDP on Monday.
     The economy likely shrank at a slightly slower pace in
July-September than the government initially estimated because a
fall in capital spending by firms may have been less than
measured in preliminary data, according to a Reuters poll.
 
    Latest data showed Japanese factory output unexpectedly rose
in October for the first time in four months, lifted by robust
demand for smartphones in Asia and raising hopes that the worst
of the contraction in the economy may be over.
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