Monthly Economic Report(September 1999)
JAPANESE ECONOMY1. OVERVIEW Recent economic trends in Japan reveal that personal consumption is gradually recovering, though income remains sluggish. Purse strings started to loosen, despite the fact that the purse contents have not increased. Housing construction keeps the level recorded a year ago as a whole, although the starts of self-owned houses have fallen after a recent surge. Investment in plant and equipment keeps decreasing substantially as a trend. Implementation of public works is proceeding, despite the recent weakness in new starts. Exports are gradually increasing with those to Asia in a rising trend. Inventory adjustment has proceeded and the inventory/shipment ratio has come down to a level lower than a year ago. Industrial production is broadly stable, at a low level, reflecting above final demand conditions. But there are signs of improvement. The employment situation remains severe. The number of employees has decreased and the unemployment ratio stays at an unprecedented high level with an increase in involuntary unemployment. Although firms become less concerned about financial liquidity, lending by private financial institutions remains stagnant. Firm profits have started to recover. All in all, the economy has not yet got out of a severe situation, as the momentum for recovery in private demand remains weak. However, activities have slightly improved, as effects of various policy measures, among other things, have spread through the economy. The Government will strongly promote policies including those in "Emergency Economic Package," "Emergency Employment Measures" and in "Measures for Enhancing Industrial Competitiveness." With an aim to realize a smooth baton pass form public to private demand, and to ensure a full-scale recovery without a setback, the Government will take necessary steps for prompt use of the public works contingency budget, keep watching economic development carefully, and will take flexible and timely measures including the provision of the second supplementary FY1999 budget based on the idea of 15-month budget. 2. EVALUATION ON INDIVIDUAL INDICATORS The Japanese economy, in terms of demand, shows that personal consumption is gradually recovering, though income remains sluggish. Purse strings started to loosen, despite the fact that the purse contents have not increased. Housing construction keeps the level recorded a year ago as a whole, although the starts of self-owned houses have fallen after a recent surge. Implementation of public works is proceeding, despite the recent weakness in new starts. Real GDP for the second quarter, 1999, increased 0.2% from the previous quarter (preliminary report; up 0.9% at an annual rate), of which contribution by domestic demand resulted in positive 0.2%. With regard to industry, investment in plant and equipment keeps decreasing still substantially as a trend. Inventory adjustment has proceeded and the inventory/shipment ratio has come down to a level lower than a year ago. In such a situation, industrial production is broadly stable, at a low level, reflecting above final demand conditions. But there are signs of improvement. Corporate profits have come to recovery. And enterprises' judgment on business conditions, though still in a severe situation, is towards improvement. The number of bankruptcy has been at the level lower than a year ago due mainly to the expansion of the Credit Guarantee, although it has increased in a degree since early spring. The employment situation remains severe. The number of employees has decreased and the unemployment ratio stays at an unprecedented high level with an increae in involuntary unemployment. Both exports and imports increase gradually, reflecting the trends of exports to and imports from Asia. As for the balance of payments, surpluses registered in the trade and service account balance remain almost at the same level. The exchange rate of the yen against the US dollar (interbank spot central rate), after moving toward the middle ten days of August from the 114-yen level to the 115-level, rose in the first ten days of September to the 109-yen level. Reviewing the price movements, domestic wholesale prices have hit the bottom of the downward trend, and consumer prices remain stable. Taking a look at the recent financial situations, short-term interest rates remained at the same level from August toward the first ten days of September. Long-term interest rates, after rising temporarily in August, remained at the same level toward the first ten days of September. Stock prices, which fell in the first ten days of August, rose since the month's middle ten days and fell from the month's end toward the first ten days of September. Money supply (M2+CD) increased 4.0% in August, compared with the level of the previous year's same month. Further, although the feeling of stringent corporate financing has been mitigated, stagnancy in lending by private financial institutions continues. 3. OVERSEAS ECONOMY Reviewing the economic trends of major nations, the economy of the United States, while a feeling of somewhat opacity over its future is observed, continues to expand. Real GDP, compared at an annual rate with the previous quarters ' Ievels, afier increasing 4.3% in the first quarter,1999, resulted in a 1.8% increase in the second quarter (advance estimate). Both personal consumption, and investment in plant and equipment, increases. Housing construction decelerates in the increase rate, considerably as a reaction to the substantial increase attained in the first quarter, 1999. Industrial production (total, including mining) increases. Employment, while expanding, however, decreases especially in manufacturing industry due mainly to the decreases in exports. Prices in general remain stable. Deficits registered in the trade balance for goods (on a Balance of Payments basis) are enlarged. On August 24, The Federal Reserve System announced to change the financial policy by raising the rediscount rate by 0.25 percentage points to 4.75 % and also by raising the rate guidance target level for federal funds by 0.25% points to 5.25%. Long-term interest rates (government bonds for 30-year redemption) almost leveled off throughout August, rising in the month's first half but declining at the month's end. Stock prices (Dow Jones industrial average) rose substantially since the middle ten days of August but fell at the month's end, resulting thus in a narrow rise on an average throughout August. In Western Europe, the economy of Germany is improving gradually. The French economy continues to show a gradual expansion. The economy of the United Kingdom has improved. Industrial production almost remains at the same level. The unemployment rate in Germany has recently been at the same level. The unemployment rate in France, though still at a high level, declined slightly, while the rate has been at a low level in the United Kingdom. Prices remain stable. In East Asia, expansion of the Chinese economy recently slows, Prices there fall. The Korean economy is in a rapid recovery. The unemployment rate there, though still high, declines. Taking a look at the international financial market in August, the US dollar (effective exchange rates) depreciated slightly throughout the month. Reviewing the international commodity market in August, the CRB commodity forward indices, which took on a rising trend from the beginning of the month and became bearish slightly in the month 's last ten days, rose, however, toward the month's end rapidly to the level just before 200 points. Spot prices for crude oil (North Sea Brent), after rising almost straight till the middle ten days of August, showed temporarily a bearish scene in the following ten days but were restored to the level of US$21 again at the month's end.