(Provisional translation)
Monthly Economic Report
Executive Summary
( February 2009 )




(Assessment of the current state of the Japanese economy)

 The economy is worsening rapidly while in a severe situation.

* Exports and Industrial production are decreasing very substantially.
* Corporate profits are falling substantially and business investment is decreasing.
* The employment situation is getting worse rapidly.
* Private consumption is decreasing moderately.

  As for short-term prospects, while the economy is likely to continue worsening for the time being, there is fear that rapid reduction of production will lead to significant employment adjustment. Moreover, attention should be given to the risks that the economy would become severer due to the worsening global financial crisis, concerns over further slowdown in overseas economies and effects of fluctuations in stock and foreign exchange markets.

(Policy stance)

  The Government implements economic and fiscal policies by the three-stage consisted of economic measures in the near term, fiscal consolidation in the mid-term, and economic growth through reforms in the mid- to long-term. In the near term to implement economic measures in the first priority, the Government steadily implements economic measures of which business scale is about 75 trillion yen in all. The Government makes an effort to be approved by the Diet of the FY2009 budget and related bill.
  In view of domestic and external economic and financial situation, the Government expects that the Bank of Japan supports economy through suitable and flexible financial policy by sharing basic perspectives on macroeconomic management. The Bank of Japan decided to resume purchasing the stocks that banks hold on February 3rd.





Detailed explanations

1.Demand trends such as consumption and investment
  In the October to December quarter of 2008, despite positive contributions from increased private inventories, private residential investment and government consumption, real GDP (gross domestic product) decreased by 3.3% on a quarterly basis (at an annual rate of 12.7%), posting negative growth for the third consecutive quarter, due to negative contributions from the net exports of goods and services, private non-residential investment, and private consumption.
  Nominal GDP decreased by 1.7% on a quarterly basis, posting negative growth for the fourth consecutive quarter.

Private consumption is decreasing moderately.
  Private consumption is decreasing moderately. 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.), decreased in December in comparison to November.
  As for short-term prospects, the employment situation is getting worse rapidly and income has become weak, so weak movements are likely to continue for the time being.

Business investment is decreasing.
  Business investment is decreasing. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment decreased both in the April-June quarter of 2008 and the July-September 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, the downward trend of business investment is expected to continue for the time being as corporate profits fall substantially and uncertainty about the economic outlook, shown by factors such as further downside risk of the global economy, is increasing.

Housing construction is decreasing.
  Housing construction is decreasing. Construction of owned houses and houses for sale is decreasing. Construction of houses for rent is in a weak tone. Housing construction in December increased 1.5% from the previous month to an annual rate of 1.001 million units.
  As for short-term prospects, the downward trend is expected to continue given that the employment situation is getting worse rapidly, income has been weak and condominium stock are at a high level.

Public investment has been generally sluggish.
  Public investment has been generally sluggish.
  Although public works orders received during the October-December quarter of 2008 were higher than in 2007, the amount of contracted public works was lower.
  As for short-term prospects, we should closely monitor the effect of the supplementary budget.

Exports are decreasing very substantially. Imports are decreasing. The deficits of the trade and services accounts are increasing.
  Exports are decreasing very substantially. By region, exports to Asia, the U.S., and the EU have all been decreasing very substantially. As for short-term prospects, amid further global economic slowdown, the decreasing trends are likely to continue for the time being.
  Imports are decreasing. By region, imports from Asia are gradually decreasing. Imports from the EU and the U.S. are also decreasing.
  As for the international balance of payments, the trade account turned negative, and the deficit in the account thereafter has been increasing as export value has decreased substantially and import value has also decreased. The deficit in the services account has been flat, thus leading the deficits of the trade and services balance to increase.



2.Corporate activities and employment

Industrial production is decreasing very substantially.
  Industrial production is decreasing very substantially due to the decrease in business investments and the very substantial decrease in exports.
  As for short-term prospects, the substantial decrease is likely to continue for the time being, since demand is decreasing and the inventory ratio is increasing remarkably. Also, the Manufacturing Industry Projection Survey expects a decrease both in January and February.

Corporate profits are falling substantially. Firms' judgment on current business conditions is deteriorating substantially. 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 July-September quarter of 2008 fell by 22.5% in comparison with the previous year, thus posting a decline for the fifth consecutive quarter, due to the fact that the amount of sales decreased. By type of industry, profits of the manufacturing industry decreased by 27.6% and those of the non-manufacturing industry decreased by 18.7%. 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 substantially. Large manufacturers' judgment on current business conditions deteriorated for the fifth consecutive quarter, while that of large non-manufacturers deteriorated for the sixth consecutive quarter. Small manufacturers' judgment on current business conditions deteriorated for the fourth consecutive quarter; whereas that of small non-manufacturers deteriorated for the seventh consecutive quarter.
  The number of bankrupt companies is increasing.

The employment situation is getting worse rapidly.
  The employment situation is getting worse rapidly.
  The total unemployment rate, which has been increasing has risen by 0.5% from the previous month to 4.4% in December. The number of unemployed people has increased while the number of employed people has decreased.
  The number of new job offers has been decreasing. The effective ratio of job offers to applicants has been declining substantially. The number of employees has been moving horizontally. Overtime hours worked in the manufacturing industry have been decreasing substantially.
  As for the movement of wages, contractual cash earnings have been weak. The total amount of cash earnings is decreasing. Also, the total special cash earnings from November to December, including bonuses, decreased from a year earlier.



3.Prices and the financial market

Domestic corporate goods prices have declined. The trend of Consumer prices has been flat 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 been flat.As for short-term prospects, consumer prices (core core) are expected to remain broadly flat for the time being. However, attention should be given to downward pressure on prices, which may be a result of moderately decreasing private consumption.

As for stock prices, after rising from the 7,900 yen level to the 8,200 yen level, the Nikkei Stock Average decreased to the 7,600 yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 89 yen level to the 88 yen level, and thereafter it is moving in the direction of depreciation to the 92 yen level.