Monthly Economic Report (September 2007)



Assessment of the current state of the Japanese economy


  The economy is recovering, while some weaknesses are seen recently.
  As for short-term prospects, the economic recovery is expected to continue supported by the domestic private demand as high corporate profits feed into the household sector. On the other hand, attention should be given to effects of developments of the U.S. economy and changes in oil prices on the Japanese economy and overseas economies.


Policy stance

  Acceleration and deepening of reforms will hereafter be pursued based on the 'Economic and Fiscal Reform 2007'. Regarding the budgetary process for the fiscal year 2008, the budget addresses steady implementation of the Basic Policies.
  In order to ensure the sustainable economic growth led by private-sector as well as establish the stability of the level of inflation, the Government and the Bank of Japan will implement the policy management, sharing their basic perspectives on macroeconomic management which are shown on the Basic Policies.



Detailed explanations


1.Demand trends such as consumption and investment

Private consumption is picking up.
  Private consumption is picking up. Consumer confidence is weakening while income is moving steady. 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.), decreased in July in comparison with the previous month, but picking up on average.

  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 generally increasing while weak movements are seen recently.
  Business investment is generally increasing while weak movements are seen recently.

  The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment by manufacturing industries increased in the April-June quarter of 2007 while business investment by non-manufacturing industries decreased.

  As for short-term prospects, business investment is expected to remain on an increasing trend, as corporate profits have continued to improve.

Housing constructionhas been generally flat.
  Housing construction has been generally flat. Construction of houses for sale has been increasing, although construction of owned houses has been decreasing moderately and construction of houses for rent has been in a weak tone. Though enforcement of the revised Building Standard Law has had a temporary effect, housing starts are expected to move steadily as long as income environments in households continue to recover along with improvement in the employment situation.

Public investment has been generally sluggish.
  Public investment has been generally sluggish.

  As for public investment in the April-June quarter of 2007, public works orders remained unchanged from the previous year while the contracted amount of public works were lower than in the previous year.

  Public investment in the July-September quarter of 2007 is considered to have been lower than in the previous year as the contracted amount of public works etc. in July decreased from a year earlier and in view of the budget situations of the national and local governments.

Exports have been gradually increasing.Imports have been gradually decreasing. The surplus in the trade and services balance has been flat.
  Exports have been gradually increasing. By region, exports to Asia have increased as a whole, with exports of general machinery increasing. Exports to the U.S. have been decreasing. Exports to the EU have gradually increased as a whole, with exports of general machinery and electrical equipment increasing. As for short-term prospects, future movement of the U.S. economy should be closely monitored.

  Imports have been gradually decreasing. By region, imports from Asia have been gradually decreasing as a whole, with imports of machinery equipment decreasing. Imports from the U.S. have been flat. Imports from the EU have gradually increased as a whole, with imports of machinery equipment increasing.

  As for the international balance of payments, the surplus in trade balance has been flat as both export and import values have increased. The deficit in the services account has remained flat, thus leading to the surplus of the trade and services balance being flat.



2. Corporate activities and employment

Production has been flat.
  Industrial production has been flat due to horizontal movement in the production of transport equipment, information-related producer goods, etc.

  As for short-term prospects, industrial production is expected 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 has been flat. The number of bankrupt companiesis on a moderate upward trend.
  According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits posted a year-on-year increase of 12.0% in the April-June quarter of 2007, a gain for 20 consecutive quarters, reflecting increased sales etc.

  The BOJ tankan shows that firms' judgment on current business conditions has been flat.

  The number of bankrupt companies is on a moderate upward trend.

The employment situation is improving steadily, though some severe aspects remain.
  The employment situation is improving steadily, though some severe aspects remain. The total unemployment rate is on a downward trend and has reached the upper 3% level.

  The number of new job offers has been moderately decreasing. Although the effective ratio of job offers to applicants had recently been rising, it was flat in July. The number of employees had been on an increasing trend, but decreased in July. Overtime hours worked in the manufacturing industry are decreasing. The proportion of business establishments that implemented employment adjustment such as "overtime restrictions" has been moving horizontally.

  As for the movement of wages, contractual cash earnings have been moving horizontally. The total amount of cash earnings has been weakening.



3. Prices and the financial market

Domestic corporate goods prices have been rising due to increased material prices. Consumer prices have been flat.
  Domestic corporate goods prices have been rising.

  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.

As for stock prices, after falling to the 15,200 yen level, the Nikkei Stock Average rose to the 16,500 yen level and then dropped to the 15,700 yen level. The yen rate against the U.S. dollar moved in the direction of appreciation from the 119 yen level to the 112 yen level and is thereafter moving at the 114 yen level .