TOKYO (AFX-ASIA) - The Cabinet Office said the May leading index showed a sharp rise above the 50 point boom-bust line due mainly to special factors, though it does not expect the reading to remain at such high levels.
The leading index of economic indicators rose to 71.4 points from 33.3 the previous month, while the coincident index rose to 25.0 from 10.0.
A Cabinet Office official said that while the leading index is likely to remain above the 50 point line when it is revised July 17, several factors, including the level of new recruits, will contribute negatively to the new figure.
"We cannot say the leading index will continue to move at high levels. It is hard to assess whether it will improve or worsen," the official said.
"The strong leading index is due to special factors, such as new car registrations, which increased from the previous year because there was one extra registration day," he said.
"Besides, mid-sized apartment construction increased, while money supply continued to rise for the ninth straight month due to an inflow from postal savings maturities into M2 money supply," the official said.
"Even without these special factors, the leading index would still be at high levels," he said.
However he highlighted that "there were no large positively contributing factors. Household income, for example, is not showing strong growth".
The Cabinet Office said the trend of the coincident index, which remained below the boom-bust line for the fifth straight month, suggests that Japan has already entered a recession.
"The Japanese economy might have already fallen into a recessionary phase at some point. There is a strong possibility that June will also be below the 50 point line," the official said.
"Production is in a falling trend so we need to cautiously watch future developments of the index," he added.