Monthly Economic Report (June 2006)
Assessment of the current state of the Japanese economy
The economy is recovering.
As for short-term prospects, the economic recovery supported by the domestic private demand is expected to continue, as resiliency in the corporate sector is extending into the household sector. On the other hand, attention should be given to an effect which developments of oil prices in particular have on both domestic and overseas economies.
- Corporate profits are improving and business investment is increasing.
- Private consumption is increasing moderately.
- The employment situation is improving on a broader basis, though some severe aspects remain.
- Exports and industrial production is increasing moderately.
The Government intends to decide the "Basic Policies for Economic and Fiscal Management and Structural Reform 2006" (tentative name) including both the enhancement of the growth capacity and competitiveness and the sound public finance in order to accelerate and deepen structural reforms.
In order to secure the eradication of deflation during the "Concentrated Consolidation Period," the government and the Bank of Japan will make joint efforts.
1.Demand trends such as consumption and investment
Real GDP (gross domestic product) in the January-March quarter of 2006 (first preliminary estimates) grew by 0.5% (at an annual rate of 1.9%) on a quarterly basis, mainly led by the growth of Private Final Consumption Expenditure and Private Non-residential Investment (posting growth for the fifth consecutive quarter). Nominal GDP remained unchanged from the previous quarter.
Private consumption is increasing moderately.
Private consumption is increasing moderately, reflecting an improvement of consumer confidence and moderate increase of income. The Synthetic Consumption Index, which synthesizes demand-side statistics (Family Income and Expenditure Survey, etc.) and supply-side statistics (Indices of Industrial Producer's Shipment, etc.) increased in April.
As for short-term prospects, private consumption is expected to continue increasing as improvement of the employment situation has led to improvement of the income environment.
Business investment is increasing.
Business investment is increasing thanks to an improvement of corporate profits and increases in demand. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment by the manufacturing industry increased for the seventh consecutive quarter in the January-March quarter and business investment by the non-manufacturing industry is increasing.
Business investment is expected to remain on an increasing trend, as corporate profits have continued to improve.
Housing construction has been increasing recently.
Housing construction has been increasing recently. Construction of houses for rent and construction of houses for sale increased, although construction of owned houses has been generally flat. Housing starts are expected to move steadily if the income environments in households continue to recover along with the improvement in the employment situation.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
Exports are increasing moderately.Imports are increasing. The surplus in the trade and services balance has been decreasing.
Exports are increasing moderately. By region, exports to Asia have been increasing moderately as a whole as exports of general machinery have been increasing, although exports of electrical equipment have weakened. Exports to the US have been increasing moderately as a whole as exports of transportation equipment have been increasing, although exports of electrical equipment have weakened. Exports to the EU remain flat. For short-term prospects, exports are expected to increase along with the steady recovery of the world economy.
Imports, mainly of machinery equipment, are increasing. By region, imports from Asia have been increasing, especially machinery equipment. Imports from the US have been decreasing and imports from the EU remain flat.
As for the international balance of payments, although export volume is increasing moderately, the surplus in trade balance has been decreasing, as import volume increases. The deficit in the services account has been increasing. Due to this, the surplus in the trade and services balance has been decreasing.
2. Corporate activities and employment
Production is increasing moderately.
Industrial production is increasing moderately as a whole backed by a moderate increase in exports and an increase in business investment, despite inventory adjustments seen in some areas.
As for short-term prospects, industrial production is expected to continue increasing moderately, reflecting the increase in business investment and the steady recovery of the world economy.
Corporate profits are improving. Firms' judgment on current business conditions is moderately improving, although some sectors remain cautious. The number of bankrupt companiesremains almost flat.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits posted a year-on-year increase of 4.1% in the January-March quarter of 2006, a gain for 15 consecutive quarters, reflecting increased sales. By type of industry, profits of the manufacturing industry increased 5.5% and those of the non-manufacturing industry increased 3.2%, reflecting decreased profits by such industries as chemicals and transportation and increased profits by such industries as transportation machinery and electrical machinery.
The number of bankrupt companies has remained almost flat. The number of corporate failures was approximately 1,100 in April, marking a year-on-year increase, but remaining at a low level.
The employment situation is improving on a broader basis, though some severe aspects remain.
The employment situation is improving, though some severe aspects remain. Although the total unemployment rate is at a high level, it is on a downward trend, and wages have been increasing moderately.
The number of new job offers has been increasing. The effective ratio of job offers to applicants has been rising. The number of employees has been on an increasing trend. Overtime hours worked in the manufacturing industry have also been on an increasing trend. As for the movement of wages, contractual cash earnings have been increasing moderately.
3. Prices and the financial market
Domestic corporate goods priceshave been rising due to increased material prices.Consumer prices have been flat.
Domestic corporate goods prices have been rising.
Consumer prices remain flat.
The year-on-year change in consumer prices has been positive since last November, but the rate of change has been in the neighborhood of zero percent if petroleum products and other special factors are excluded. Taken as a whole, these movements show some improvement in the current trend of prices though a situation of consecutive decreases in prices (deflation) has remained.
Stock prices fell close to 14,700 yen (Nikkei Stock Average). The yen against the U.S. dollar moved in the direction of depreciation from the 109-yen level to the 113-yen level.