Monthly Economic Report (March 2007)
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.
In accordance with 'Direction and Strategy for the Japanese Economy', the Government will pursue acceleration and deepening of reforms for realization of "New Growth Economy".
On February 21, the Bank of Japan decided to encourage the uncollateralized overnight call rate to remain at around 0.5 percent.
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, sharing their basic perspectives on macroeconomic management.
1.Demand trends such as consumption and investment
Private consumption is almost flat.
Private consumption is almost flat, reflecting horizontal movements of consumer confidence and 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 January 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. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment by both the manufacturing and non-manufacturing industries increased in the October-December quarter of 2006.
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 sales has been increasing, although construction of owned houses and houses for rent has 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.
In public investment in the October-December quarter of 2006, public works orders, orders received by 50 major companies and the contracted amount of public works decreased from the previous year.
Public investment in the January-March quarter of 2007 is considered to have been on a decreasing trend, as public works orders and the contracted amount of public works in January decreased from a year earlier.
Exports have been flat.Imports have been flat. The surplus in the trade and services balance is increasing.
Exports have been flat. By region, exports to Asia have remained flat. Exports to the US have been flat as a whole, with exports of general machinery decreasing. Exports to the EU have been decreasing moderately. For short-term prospects, close monitoring is required for the future movement of the US economy.
Imports have been flat. By region, imports from Asia remained flat. Imports from the US remained flat. Imports from the EU remained flat as a whole, with imports of machinery equipment decreasing.
As for the international balance of payments, the surplus in trade balance has increased as export value increased and import value remained flat. The deficit in the services account has remained flat. Due to this, the surplus in the trade and services balance has increased.
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 Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits posted a year-on-year increase of 8.3% in the fourth quarter of 2006, a gain for 18 consecutive quarters, reflecting increased sales.
The BOJ tankan survey shows that firms' judgment on current business conditions is moderately improving.
The number of bankrupt companies has remained almost flat. The number of corporate failures was approximately 1,100 in February, 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.
The number of new job offers has been moderately decreasing recently. The effective ratio of job offers to applicants has been on a downward trend. The number of employees has been increasing. Overtime hours worked in the manufacturing industry decreased. The proportion of business establishments that implemented employment adjustment such as "overtime restrictions" decreased.
As for the movement of wages, contractual cash earnings and total cash earnings have been moving horizontally.
3. Prices and the financial market
Domestic corporate goods prices and Consumer prices have been flat.
Domestic corporate goods prices have been flat.
Consumer prices have been flat.
The rate of year-on-year change in consumer prices 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 have been moving at the 17,100 yen (Nikkei Stock Average) level after the fall to the 16,600 yen level after rising to the 18,200 yen level. The yen against the U.S. dollar moved in the direction of depreciation to the 117-yen level, after moving in the direction of appreciation to the 115-yen level after moving in the direction of depreciation to the 121-yen level.