Leading Economic Index

The Conference Board, a United States nonprofit think tank, publishes Japan LEI as a monthly composite of 10 leading series. It sits in the Business Cycle Indicators program and tracks the national economy.

Nine inputs are financial and economic series; the tenth is a Bank of Japan firm survey in diffusion form. It skips current conditions and GDP itself; its Coincident partner tracks present conditions close to real GDP. It also differs from the Cabinet Office Leading Index, a separate Japanese government gauge with different inputs and scale. It leads turning points by about 4 months.

The Conference Board releases Japan LEI monthly at 10:30 AM ET, about 4 to 6 weeks after the reference month, and names the next release. Read its changes and breadth, not its level; it carries no buy or sell trigger.

Each release reports LEI and Coincident levels (2016=100) with monthly and 6-month changes, diffusion, contribution rankings, chronology, and two charts. It quotes the Senior Manager for Business Cycle Indicators.

Monthly updates revise only the prior 6 months, using data available as of a stated time. Missing inputs are estimated by autoregression, then revised when actuals arrive. Yearly benchmarks redo full history, reset factors and base year, and break comparability.

Weights below are January 2014 standardization factors; each benchmark revises them.

• Real Money Supply (M2 + CD), 29.88%: liquid funds available to the economy; the heaviest weight.
• Yield Spread, 18.01%: monthly level of long rates minus short rates; credit conditions and expectations.
• Productivity and Overtime, 19.42%: factory efficiency, overtime hours, and labor-input intensity.
• Tankan Business Conditions, 8.89%: Bank of Japan firm survey; it enters as a diffusion-style monthly level.
• Failures, Profits, and New Orders, 16.95%: inverted bankruptcies, real operating profits, and machinery-plus-construction orders; they track distress, earnings, and coming investment.
• Stock Prices and Housing Starts, 6.85%: TOPIX expectations and dwelling units started; they track markets and home building.

The January 8, 2009 release showed November 2008 down 2.6% to 89.4 (2004=100), after October and September falls of 2.5% and 1.6%. The 6-month slide reached 10.4%, about a 19.8% annual rate and the weakest in over 33 years. Only two of 10 components rose, real money supply and the yield spread, while six-month breadth sat at 20.0%.

Overtime, productivity, profits, Tankan, failures, housing, stocks, and orders led the fall. The coincident gauge fell 0.9% to 100.5, down 3.3% over 6 months, about 6.4% annualized, its lowest since 1975. Real GDP had shrunk two straight quarters, the first such drop since the second half of 2001.

The publisher warned the broad slide pointed to more contraction in 2009. The same release rebased history from 1990=100 to 2004=100.

1. Monthly change: Take each input's monthly shift; rates and percent moves use simple gaps, others a symmetric formula. Yield spreads and diffusion gauges enter as monthly levels, first centered and scaled.
2. Standardize: Scale each shift by its factor so calm and jumpy series match; if one is missing, rescale the rest to 1.
3. Sum plus trend: Add the scaled shifts plus a trend fix: past average coincident growth minus past average leading growth.
4. Rebuild level: Rebuild the level from 100 with an inverse symmetric link.
5. Rebase and maintain: Divide by the base-year mean times 100, so the index averages 100 in the base year, here 2016. Use source-agency seasonally adjusted inputs; fill gaps by autoregression, refresh 6 months monthly, redo history yearly.
6. Breadth check: Score each part as 1.0 for rises over 0.05%, 0.5 for flat moves, else 0.0. Average times 100 over one-month and six-month spans. For example, 6 of 10 rising, 1 flat, and 3 falling parts score 65.0. Rerun monthly for the latest 6 months only; full history waits for the yearly benchmark.