Monthly Economic Report (November 2006)
Assessment of the current state of the Japanese economy
The economy is recovering, despite some weakness in consumption.
As for short-term prospects, the economic recovery is expected to continue supported by the domestic private demand as high corporate profits currently observed feed 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.
- The employment situation is improving on a broader basis, though some severe aspects remain.
- Private consumption is almost flat.
- Exports have been flat and industrial production is increasing moderately.
Acceleration and deepening of structural reforms will be pursued based on "Basic Policies for Economic and Fiscal Management and Structural Reform 2006."
In order to secure the trend of price stability during the "Concentrated Consolidation Period" and ensure the sustainable economic growth led by private-sector demand under price stability, 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 third quarter of 2006 grew by 0.5% on a quarterly basis (at an annual rate of 2.0%), posting positive growth for the seventh consecutive quarter. It was mainly led by the growth of private non-residential investment and net exports (exports minus imports) of goods and services, although private final consumption expenditure and public fixed capital formation made a negative contribution. Nominal GDP grew by 0.5% on a quarterly basis, posting positive growth for the seventh consecutive quarter.
Private consumption is almost flat.
Private consumption is almost flat, reflecting decelerating income, with consumer confidence moving horizontally. 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 September from the previous month, but has remained almost flat.
As for short-term prospects, private consumption is expected to increase, if improvement of the employment situation leads 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.
According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment in fiscal 2006 is expected to increase for the fourth consecutive year. As well, corporations' sense of excess capacity, which indicates future business investment, has been on an improving trend. Business investment is expected to remain on an increasing trend, as corporate profits have continued to improve.
Housing construction has been generally flat.
Housing construction has been generally flat. Construction of owned houses, houses for rent and houses for sale have been generally flat. Housing starts are expected to move steadily as long as 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 have been flat.Imports have been flat. The surplus in the trade and services balance has been flat.
Exports have been flat. By region, exports to Asia have been increasing moderately as a whole, as exports of chemical products and iron & steel have increased. Exports to the US have remained flat. Exports to the EU have remained flat as a whole as exports of transportation equipment have decreased. For short-term prospects, close monitoring is required for the future movement of the U.S. economy.
Imports have been flat. By region, imports from Asia remained flat. Imports from the US increased as a whole as imports of machinery equipment have increased. Imports from the EU remained flat.
As for the international balance of payments, the surplus in trade balance has remained flat, with both import volume and export volume remaining flat. The deficit in the services account has remained flat. Due to this, the surplus in the trade and services balance has remained flat.
2. Corporate activities and employment
Production is increasing moderately.
Industrial production is increasing moderately backed by an increase in business investment, etc.
As for short-term prospects, industrial production is expected to continue to increase moderately, reflecting the increase in business investment, etc. In addition, attention should be given to the future movement of inventory for information-related producer goods.
Corporate profits are improving. Firms' judgment on current business conditions is moderately improving. The number of bankrupt companiesremains almost flat.
According to the BOJ tankan, fiscal 2006 sales are expected to post an increase for the fourth consecutive year, and fiscal 2006 current profits are expected to post an increase for the fifth consecutive year.
The BOJ tankan survey also shows that firms' judgment on current business conditions is moderately improving. Large manufacturers' judgment on current business conditions improved for the second consecutive quarter, as judgment by such industries as iron & steel and nonferrous metals improved, although judgment by such industries as pulp & paper and motor vehicles worsened. Large non-manufacturers' judgment remained unchanged.
The number of bankrupt companies has remained almost flat. The number of corporate failures was approximately 1,100 in October, 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 on a moderately increasing trend. The effective ratio of job offers to applicants has been on a rising trend. The number of employees has been increasing. Overtime hours worked in the manufacturing industry have been increasing.
As for the movement of wages, contractual cash earnings have been moving horizontally. The total cash earnings are increasing moderately on the whole.
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 have been flat.
Although the year-on-year change in consumer prices has been positive, the rate of change has been in the neighborhood of zero percent if petroleum products and other special factors are excluded.
However, we need to keep a close watch on the impact of overseas economic movements on future price movements.
Stock prices fell to the 15,700 yen (Nikkei Stock Average) level, after rising from the 16,500 yen level to the 16,800 yen level. Long-term interest rates have been moving at the high 1.6% level after rising to the low 1.8% level.