Japan May key economic index shows economy in upturn phase

Japan's economy has turned positive as the depreciation of the yen sparks hopes of a recovery in exports, prompting companies to boost production, a government report said Friday.

The index of coincident indicators, such as industrial output, retail sales and new job offers, climbed to 105.9 in May from 105.1 the previous month for the sixth straight monthly rise, the Cabinet Office said in a preliminary report.

From May, the base year of the indicators was changed to 2010 from 2005 and past figures were revised retroactively.

The office raised its basic assessment of the coincident index for the first time in three months, saying it indicates the economy has entered an "upturn phase." Last month, the office said the index suggests the economy "has bottomed out."

A Cabinet Office official said the assessment would be upgraded to "improvement" if the coincident index's three-month moving average gains in June.

"We can tentatively say there is a high possibility that the economy is in an expansion phase," the official added.

Indeed, many data have shown the world's third-largest economy is recovering on the back of Prime Minister Shinzo Abe's policies, dubbed "Abenomics," centering on bolder monetary easing that triggered the yen's slide and higher stocks.

But as financial markets have started to fluctuate widely since late May, dampening excessive optimism for Japan's economy, the indicators to be released in the next few months may be closely watched to analyze whether it can get on a sustainable recovery path, economists said.

In May, the yen was down 23.4 percent from a year earlier against the U.S. dollar, the Finance Ministry said.

That month the Topix index of all First Section issues on the Tokyo Stock Exchange was up 8.4 percent from the previous month on an monthly average basis, after increasing 8.0 percent in April and 7.0 percent in March, government data showed.

A falling yen usually supports exports by making Japanese products cheaper abroad and increases the value of overseas revenue in yen terms, although it pushes up import prices.

Meanwhile, the index of leading indicators, which predicts developments in the coming few months, rose to 110.5 in May from 107.7. The index of lagging indicators, measuring economic performance in the recent past, decreased to 108.9 from 109.2.