(Provisional translation)
Monthly Economic Report
Executive Summary
( February 2010 )




(Assessment of the current state of the Japanese economy)

  Although the economy has been picking up, it is short of autonomous factors and remains in a difficult situation such as a high unemployment rate.

* Exports are increasing moderately. Industrial production is picking up.
* Corporate profits are decreasing substantially, but the downward pace has become moderate. Business investment is starting to level off, while weak movements are seen recently.
* Although firms' judgment on current business conditions remains in a difficult situation, it continues to show movements of picking up as a whole. However, small and medium-sized enterprises are cautious about the immediate future.
* The employment situation remains severe.
* Private consumption continues to show movements of picking up.
* Recent price developments show that the Japanese economy is in a mild deflationary phase.

  As for short-term prospects, although the employment situation remains severe, the economy is expected to pick up reflecting improvement in overseas economies and the effects of the Emergency Economic Measures. On the other hand, attention should be given to the risks that the economy is depressed by a further worsening of the employment situation, concerns over slowdown in overseas economies, and the influence of deflation.

(Policy stance)

  The government implements policy management to realize stable economic growth mainly on the domestic demand that puts Japanese economy on the autonomous recovery path by expanding individual consumption by support of households and by producing industry and employment in a new field. The Government makes an effort to be approved by the Diet of the FY2010 budget and related bill. The government promotes "Emergency Economic Countermeasures for Future Growth and Security". The Government implements specification of the "New Growth Strategy (Basic Policies)" and ensures policy realization.
  The Government decided the "Fiscal 2010 Economic Outlook and Basic Stance for Economic and Fiscal Management" on January 22nd. The government and the Bank of Japan will work together to ensure overcoming deflation and recovering economy by conducting aggressive and comprehensive measures. The government expects the Bank of Japan to support the economy through appropriate and flexible monetary policy management in line with such government measures.





Detailed explanations

1. Demand trends such as consumption and investment
  Real GDP (gross domestic product) in the October-December quarter of 2009 increased by 1.1% on a quarterly basis (at an annual rate of 4.6%). Nominal GDP increased by 0.2%.
Private consumption continues to show movements of picking up.
  Private consumption continues to show movements of picking up due to the effects of the policy packages. Consumer confidence remains almost flat. Real income of employees is on a declining trend. 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 December in comparison to November.
  As for short-term prospects, it is expected that private consumption is supported by the effects of the policy packages. However, we should closely monitor severe employment and income situations.

Business investment is starting to level off, while weak movements are seen recently.
  Business investment is starting to level off, while weak movements are seen recently. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, shows that business investment decreased both in the April-June quarter of 2009 and the July-September quarter of 2009. Capital goods Shipments, supply-side statistics, are picking up.
  According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment in fiscal 2009 is expected to decrease for the second consecutive year for both large manufacturers and large non-manufacturers.
  As for short-term prospects, business investment is expected to be sluggish for the time being while corporate profits decrease substantially and uncertainty about the economic outlook, shown by factors such as downside risk of the global economy, is high.

Housing construction is showing movements of picking up recently.
  Housing construction is showing movements of picking up recently. Construction of owned houses is picking up. Construction of houses for rent is showing movements of picking up recently. Construction of houses for sale is nearing the bottom.
  As for short-term prospects, although the employment and income situations remain severe, housing construction is expected to show steady movement reflecting the effects of the policy packages.

Public investment has shown steady performance on the whole, while weak movements are seen recently.
  Public investment has shown steady performance on the whole, while weak movements are seen recently.
  The amount of contracted public works in January 2010 and public works orders received in December 2009 were lower than in the previous year.
  As for short-term prospects, we should closely monitor the execution of related budgets..

Exports are increasing moderately. Imports are picking up moderately. The surplus in the trade and services balance has been flat.
  Exports are increasing moderately. By region, exports to Asia are increasing moderately. Exports to the U.S. are picking up. Exports to the EU are showing movements of picking up. As for short-term prospects, it is expected that exports are continuously showing an upward trend for the time being since the world economy is picking up moderately.
  Imports are picking up moderately. By region, imports from Asia are increasing moderately. Imports from the U.S. are picking up. Imports from the EU are showing movements of picking up.
  As for the international balance of payments, the surplus in the trade account has been flat while both export and import values have increased. The deficit in the services account has been flat, thus leading the surplus of the trade and services balance to be flat.



2.Corporate activities and employment

Industrial production is picking up.
  Industrial production is picking up.
  As for short-term prospects, production is expected to continue to pick up for the time being, reflecting upward trend of exports. Also, the Survey of Production Forecast expects an increase both in January and February.

Corporate profits are decreasing substantially, but the downward pace has become moderate. Although Firms' judgment on current business conditions remains in a difficult situation, it continues to show movements of picking up as a whole. However, small enterprises are cautious about the immediate future. The number of bankrupt companies is decreasing moderately.
  According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the July-September quarter of 2009 decreased by 32.4% in comparison with the previous year, thus posting a decline for the ninth consecutive quarter, due to the fact that the amount of sales decreased. By type of industry, profits of the manufacturing industry decreased by 69.3% and those of the non-manufacturing industry decreased by 7.8%. According to the BOJ Tankan, fiscal 2009 sales are expected to post a decrease for the second consecutive year, and fiscal 2009 current profits are expected to post a decrease for the third consecutive year.
  The BOJ Tankan shows firms' judgment on current business conditions. The whole economy is showing movements of picking up while the situations remain severe. Both large manufacturers' and large non-manufacturers' judgments on current business conditions improved for the third consecutive quarter. Small manufacturers' and small non-manufacturers' judgments on current business conditions improved for the second consecutive quarter. However, small enterprises, mainly in the construction industry, are cautious about the immediate future.
  The number of bankrupt companies is decreasing moderately.

The employment situation still remains severe.

  The employment situation still remains severe. The total unemployment rate has hovered at a high 5.P% in December, decreased by 0.1 percentage points from the previous month.
  The number of new job offers and the effective ratio of job offers to applicants have been showing movements of picking up. The number of employees has been showing movements of picking up recently. Overtime hours worked in the manufacturing industry have increased, reflecting pickup of the production.
  As for the movement of wages, contractual cash earnings have been moving horizontally, but the total amount of cash earnings have been decreasing substantially as special cash earnings including bonuses decreased substantially.



3.Prices and the financial market

Domestic corporate goods prices have been flat. Consumer prices continue to decline moderately.
  Domestic corporate goods prices have been flat.
  Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components" (referred to as "core core"), continue to decline moderately. As for short-term prospects, consumer prices (core core) are expected to remain on a moderate downward trend. Taken together, these movements show that the Japanese economy is in a mild deflationary phase in that the decline in prices is continuing.

As for stock prices, after decreasing from the 10,800 yen level to the 9,900 yen level, the Nikkei Stock Average rose to the 10,100 yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 91 yen level to the 89 yen level, and thereafter it is moving in the direction of depreciation to the 91 yen level.