Tokyo, March 7 (Bloomberg) -- Japan's index of leading economic indicators signaled a contraction for the first time since October, suggesting that the economy may slide back into recession for the fourth time since 1990. The index, which includes job offers, machinery orders and other measures of future activity, was at 44.4 percent in January, compared with a revised 66.7 percent in December, the Cabinet Office said. A reading above 50 signals economic growth in about six months, and a lower reading points to a contraction. Report came as the Nikkei 225 Index tumbled to a 20-year low on concern that exports by companies such as Honda Motor Co. would be hurt by a possible war in Iraq. Exports accounted for half of last quarter's 0.5 percent growth in the world's second-biggest economy.
``The Iraq situation doesn't make the outlook so bright,'' said Azusa Kato, an economist at BNP Paribas Securities. ``There's nothing in the economy that suggests growth.'' Of the nine available components in the leading index, five fell, led by production and stock prices. Japan's statistics bureau forecast earlier that industrial production would fall 0.4 percent in February after gaining 1.5 percent in January. The coincident index, which tracks factory production, power use by large manufacturers and department store sales to measure current economic performance, was at 88.9 percent, compared with a revised 45.5 percent in December, today's report showed. The percentages are derived by dividing the number of positive components by all available components. Of the nine components in the coincident index, industrial production was the only one to fall, dropping for a third month.
Spending
The No. 247 bond, which carries a 0.8 percent coupon and matures in 2013, rose 0.14 to 100.465 at 5:14 p.m. in Tokyo. Its yield fell 1.5 basis points to 0.75 percent. A basis point is 0.01 percentage point. Overall household spending in January fell 1.5 percent from a year earlier, another report today showed. From December, spending rose 2.8 percent, seasonally adjusted, the first gain in four months. Job cuts and declining wages are likely to hurt domestic demand, which accounts for about 55 percent of Japan's economy, economists said. Japan's unemployment rate rose to match a record 5.5 percent in January as slowing sales forced retailers such as Tokyu Department Store Co. to slash jobs. ``Domestic demand is really losing momentum,'' said Tomoaki Shishido, an economist at Nomura Research Institute. ``We probably won't see much change in this trend during the first half of the year.'' Shishido forecasts the economy to contract in the first half of the year as a possible attack on Iraq hampers global demand for exports. //www.quote.bloomberg.com/