Monthly Economic Report
( November 2008 )
(Assessment of the current state of the Japanese
The economy has weakened further. Amid further slowdown in the global economy, the downward pressure on the Japanese economy is increasing rapidly.
* Exports are decreasing. Industrial production is decreasing.
* Corporate profits are falling and business investment is in a weak tone.
* The employment situation is getting worse.
* While private consumption is almost flat, some weak movements are seen lately.
As for short-term prospects, while some positive effects of oil price decline are expected, attention should be given to the risks that the economy, including the employment situation, would become severer due to the worsening global financial crisis, concerns over further slowdown in overseas economies and large fluctuations of the stock and foreign exchange markets.
The Government will steadily implement the "Comprehensive Immediate Policy Package -Easing Public Anxiety-". In addition, in view of the present financial and economic conditions, the Government published the "Economic Policy Package: Measures to Support People's Daily Lives" on October 30th which comprises three priority areas: 1) easing anxiety in people's daily lives, 2) reinforcing financial and economic stability, and 3) realizing latent potential of regions.
Reform will be accelerated and deepened based on the "Economic and Fiscal Reform 2008" (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 will conduct policies by sharing basic perspectives on macroeconomic management indicated in the above mentioned Basic Policies while closely monitoring domestic and external economic and financial developments.
On October 31st, the Bank of Japan decided to lower the Bank's target for the uncollateralized overnight call rate by 20 basis points and encourage it to remain at around 0.3%.
1.Demand trends such as consumption and investment
Real GDP (gross domestic product) in the July-September quarter of 2008 decreased by 0.1% on a quarterly basis (at an annual rate 0.4%), posting negative growth for the second consecutive quarter. Nominal GDP decreased by 0.5 %, posting negative growth for the second consecutive quarter.
While private consumption is almost flat, some weak movements are seen lately.
While private consumption is almost flat, some weak movements are seen lately. Consumer confidence has been deteriorating, and income has been weak. 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.) remained almost flat, but increased in September in comparison to August.
As for short-term prospects, we need to keep a close watch on the situation since stock prices are sharply dropping while income has been weak.
Business investment is in a weak tone.
Business investment is in a weak tone. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment increased in the January-March quarter of 2008, whereas it decreased in the April-June 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, amid falling corporate profits and increasing uncertainty about the economic outlook, shown by factors such as further downside risk of the global economy, cautious movements are expected to continue for the time being.
Housing construction is almost flat.
Housing construction is almost flat. Construction of owned houses has been in a firmer tone. Construction of houses for rent and houses for sale has been in a weak tone.
As for short-term prospects, we should closely monitor the fact that the employment situation is getting worse, income has been weak and condominium stock are at a high level.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
The amount of contracted public works during the July-September quarter of 2008 was higher than in the previous year; whereas public works orders received was lower than in the previous year. The amount of contracted public works for October of 2008 was below last year's level.
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 are decreasing. Imports are in a weak tone. The trade and services accounts turned negative, and the deficits of those accounts have been flat.
Exports are decreasing. By region, exports to Asia have been decreasing. Exports to the U.S. are decreasing as a whole, as exports of transport machinery have decreased. Exports to the EU have been flat. As for short-term prospects, amid further global economic slowdown, the decreasing trends are likely to continue for the time being.
Imports are in a weak tone. By region, imports from Asia have been gradually decreasing. Imports from the U.S. have been flat. Imports from the EU have been flat.
As for the international balance of payments, the surplus in the trade account decreased to turn negative during August and September as export value has been flat and import value has increased. The deficit in the services account has been flat. As a result, the trade and services accounts turned negative, and the deficits of those accounts have been flat.
2.Corporate activities and employment
Industrial Production is decreasing.
Industrial production is decreasing due to the weakening of business investments and a decrease in exports.
As for short-term prospects, sharp decrease is a concern because demand is weak and the inventory ratio is increasing, and the Manufacturing Industry Projection Survey expects a decrease in both October and November.
Corporate profits are falling. Firms' judgment on current business conditions is deteriorating. The number of bankrupt companies is increasing.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits (excluding financial holding companies) during the April-June quarter of 2008 fell by 10.5% in comparison with the previous year, thus posting a decline for the fourth consecutive quarter, due to the fact that the amount of sales decreased. By type of industry, profits of the manufacturing industry decreased by 11.7% and those of the non-manufacturing industry decreased by 9.4%. 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 is deteriorating. Large manufacturers' judgment on current business conditions deteriorated for the fourth consecutive quarter, while that of large non-manufacturers deteriorated for the fifth consecutive quarter. Small manufacturers' judgment on current business conditions deteriorated for the third consecutive quarter; whereas that of small non-manufacturers deteriorated for the sixth quarter.
The number of bankrupt companies is increasing.
The employment situation is getting worse.
The employment situation is getting worse.
The total unemployment rate, which seems to have been increasing, has decreased by 0.2 % from the previous month to 4.0 % in September.
The number of new job offers has been decreasing. The effective ratio of job offers to applicants has been declining. The number of employees has been moving horizontally. Overtime hours worked in the manufacturing industry have been decreasing.
As for the movement of wages, contractual cash earnings have been moving horizontally. The total amount of cash earnings has been weak.
3.Prices and the financial market
Domestic corporate goods prices have declined. The trend of Consumer prices has risen moderately though prices of petroleum products have declined.
Domestic corporate goods prices have declined.
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.
As for stock prices, after declining from the 9,300 yen level to the 7,100 yen level, the Nikkei Stock Average hit a record low since the end of 1989 and then increased to the 9,500 yen level only to fall into the 8,200 yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 101 yen level to the 93 yen level, and thereafter it moved in the direction of depreciation to the 99 yen level. It has moved thereafter in the direction of appreciation to the 96 yen level.