A key gauge of the current state of the economy fell below the boom-or-bust threshold of 50 percent in July for the first time in five months, the government said Wednesday.
The index of coincident economic indicators stood at 22.2 percent, down from 100.0 percent in June, the Cabinet Office said in a preliminary report. A reading above 50 percent is considered a sign of economic expansion. A figure below that line is seen as a contraction.
But the plunge was downplayed as the result of one-off factors, leaving the assessment of the current economic situation unchanged from the previous month.
"The economy is recovering, though we need to closely observe the future trend," the assessment says.
According to a Cabinet Office official, the sharp fall was caused mainly by a drop in industrial production.
Retail sales that slipped on a year-to-year basis also dragged down the index.
Nine of the 11 indicators used to calculate the index were available for the report; seven were negative. The two positive ones were industrial shipments and the job offers-to-seekers ratio.
The seven include industrial production, large-lot electricity consumption, retail sales and sales by wholesalers. The two indicators that turned positive were industrial shipments and the job offers-to-seekers ratio.
Looking ahead, the official said industrial production is projected to grow 2.3 percent in both August and September on a month-on-month basis, citing a survey by the Ministry of Economy, Trade and Industry.
But it remains uncertain whether the index of coincident economic indicators will move above the threshold in August, the official said.