Monthly Economic Report
(Assessment of the current state of the Japanese
While the economic recovery appears to be pausing, weak movements are seen recently.
* Exports and industrial production have been in a weak tone recently.
* Corporate profits are falling and business investment is almost flat.
* The employment improvement appears to be pausing while some severe aspects remain.
* Private consumption is almost flat.
As for short-term prospects, as the U.S. economy is picked up and Japanese exports return to the increasing trend accordingly, the Japanese economy is expected to recover moderately. However, attention should be given to downside risks increased by the recession risk in the U.S. economy and the fluctuations in the stock and exchange markets mainly caused by the subprime mortgage loan problem, and effects of developments of oil prices.
In view of the impact of recent hikes in crude oil, food, feed, and raw material prices, the Government published a policy package to address such price hikes on June 26th.
On June 27th, the Government decided the "Economic and Fiscal Reform 2008 (Basic Policies) - A Country Welcoming the World, Growth by and for All, Harmony with the Environment -", which indicates the course of economic and fiscal reforms for boosting growth potential of the Japanese economy and realizing prosperous and secure life of people. Reform efforts will hereafter be accelerated and deepened based on the Basic Policies.
In order to achieve sustained economic growth led by private-sector demand and a stable level of inflation rate, the Government and the Bank of Japan conduct policies by sharing basic perspectives on macroeconomic management indicated in the above mentioned Basic Policies.
1.Demand trends such as consumption and investment
Private consumption is almost flat.
Private consumption is almost flat. Consumer confidence has been deteriorating and income remains almost flat. 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 May in comparison to April, and has remained almost flat as a trend.
As for short-term prospects, since employment improvement appears to be pausing and income remains almost flat, private consumption is expected to remain broadly flat.
Business investment is almost flat.
Business investment is almost flat. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment decreased in the October-December quarter of 2007, whereas it increased in the January-March quarter of 2008.
According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment in fiscal 2008 is expected to increase for the sixth consecutive year for large manufacturers, and that for large non-manufacturers is expected to decrease for the first time in four years.
As for short-term prospects, we need to keep a close watch on the situation since corporate profits are falling.
Housing construction has recently been flat.
Housing construction has recently been flat. Construction of owned houses has been in a weak tone. Construction of houses for rent is almost flat. Construction of houses for sale had almost picked up, but has recently been flat.
As for short-term prospects, the high level of condominium stocks and rising construction costs should be closely monitored in future.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
Although public works orders received during the January-March quarter of 2008 were higher than in the previous year, the contracted amount of public works was lower than in the previous year. Public works orders received and the contracted amount of public works in May were lower than those of the previous year.
As for short-term prospects, public investment is expected to be generally sluggish in view of the budget situations of the national and local governments.
Exports have been weakening of late. Imports have been flat. The surplus in the trade and services balance has been decreasing.
Exports have been weakening of late. By region, exports to Asia have been weakening. Exports to the U.S. have been flat. Exports to the EU have been gradually decreasing as a whole, as exports of machinery have decreased. As for short-term prospects, the future movement of U.S. economy and other factors should be closely monitored.
Imports have been flat. By region, imports from Asia have been flat. Imports from the U.S. have been gradually decreasing as a whole, as machinery equipment has decreased. Imports from the EU have been flat.
As for the international balance of payments, the surplus in trade balance has been decreasing, as export value has gradually decreased and import value has been flat. The deficit in the services account has been flat, thus leading the surplus of the trade and services balance to decrease.
2.Corporate activities and employment
Production has been in a weak tone recently.
Industrial production has been in a weak tone recently , particularly for information-related producer goods etc.
As for short-term prospects, close monitoring is required for future movement of inventory for information-related producer goods and for export trends.
Corporate profits are falling. Firms' judgment on current business conditions has intensified a sign of caution. The number of bankrupt companies is on a moderate upward trend.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the January-March quarter of 2008 fell by 17.5% in comparison with the previous year, thus posting a decline for the third consecutive quarter, due to the fact that the amount of sales decreased.
According to the BOJ Tankan, fiscal 2008 sales are expected to post an increase for the sixth consecutive year, and fiscal 2008 current profits are expected to post a decrease for the second consecutive year.
The BOJ Tankan shows that firms' judgment on current business conditions has intensified a sign of caution. Large manufacturers' judgment on current business conditions deteriorated for the third consecutive quarter, and that of large non-manufacturers for the fourth consecutive quarter. Small manufacturers' judgment on current business conditions deteriorated for the second consecutive quarter, and that of small non-manufacturers for the fifth quarter.
The number of bankrupt companies is on a moderate upward trend.
The employment situation appears to be pausing while some severe aspects remain.
The employment improvement appears to be pausing while some severe aspects remain.
The total unemployment rate, which seemed to have been decreasing earlier, has stopped improving, and stood at 4.0 % in May, the same level as the previous month.
The number of new job offers has been on a downward trend. The effective ratio of job offers to applicants has been declining. The number of employees has been weakening. Overtime hours worked in the manufacturing industry have been decreasing. Corporate judgment on employees shows a decreased impression of shortness in June.
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 risen moderately.
Domestic corporate goods prices have been rising due to increased material prices.
Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components" (referred to as "core core"), have risen moderately.
As for short-term prospects, consumer prices (core core) are expected to remain on a moderate upward trend.
However, we need to keep a close watch on the impact of overseas economic movements and crude oil prices on future price movements.
As for stock prices, after rising to the 14,400 yen level, the Nikkei Stock Average dropped to the 13,000 yen level. Long-term interest rates dropped from the low 1.8 % level to the high 1.5 % level.