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




(Assessment of the current state of the Japanese economy)

  The economic movements appear to be pausing recently. It also is in a difficult situation such as a high unemployment rate.

* Exports have been weakening of late. Industrial production has been in a weak tone.
* Corporate profits are improving. Business investment is picking up.
* Firms' judgment on current business conditions is improving. However, cautious views about the immediate future are spreading.
* While the employment situation remains severe, movements of an incipient recovery can be seen recently.
* Private consumption is picking up.
* Recent price developments show that the Japanese economy is in a mild deflationary phase

  As for short-term prospects, although some weak movements can be seen for a while, the economy is expected to be picking up, reflecting improvement in overseas economies and the effects of various policy measures. On the other hand, the risks that the economy is depressed by a possible slowdown in overseas economies and fluctuations in exchange rates and stock prices are increasing. It should also be noted that there is still a risk of the influence of deflation on the economy and a concern about a possible deterioration of the employment situation.

(Policy stance)

  Based on the "New Growth Strategy", the Government implements policy management to get Japanese economy back on a path toward full-scale recovery and to terminate deflation. Placing top priority on casting off deflation, the Government will work as one with the Bank of Japan to launch vigorous and comprehensive policy efforts. The Government expects that the Bank of Japan will support the economy by appropriate and flexible monetary policy management while working closely with the Government. In order to further enhance monetary easing, the Bank of Japan decided to implement the "Comprehensive Monetary Easing Policy" on October 5th. In view of present grim situation and concerns about worsening conditions in economy, the Government determined the "Comprehensive Emergency Economic Measures in Response to the Yen's Appreciation and Deflation" on October 8th.
 





Detailed explanations

1. Demand trends such as consumption and investment
  
Private consumption is picking up.
  Private consumption is picking up due to the effects of policy packages. Consumer confidence has been weakening. Real income of employees is picking up. The Synthetic Consumption Index which synthesizes demand-side statistics (Family Income and Expenditure Survey, etc.) and supply-side statistics (Indices of Industrial Producer's Shipments, etc.) increased in August in comparison to July.
  As for short-term prospects, although there are some concerns about potential influences of the termination of the subsidies to environmentally friendly vehicles, private consumption is expected to show steady movement, reflecting the effects of policy packages, while employment and income environments remain stable.

Business investment is picking up.
  Business investment is picking up. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment decreased in the January-March quarter of 2010, before increasing in the April-June quarter of 2010. Capital goods Shipments, supply-side statistics, are increasing moderately.
  According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment in fiscal 2010 is expected to increase for the first time in three years for both large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, are picking up.
  As for short-term prospects, business investment is expected to continue to be on a pickup trend as corporate profits are improving, though a sense of excessive capital stock remains.

Housing construction is picking up.
  Housing construction is picking up. Construction of owned houses and houses for sale is picking up. Construction of houses for rent is almost flat.
  As for short-term prospects, housing construction is expected to move steadily, reflecting the effects of policy packages, while employment and income environments remain stable.

Public investment has been generally sluggish.
  Public investment has been generally sluggish.
  The amount of contracted public works in September 2010 and public works orders received in August 2010 were lower than in 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 are picking up moderately. The surplus in the trade and services balance has been flat.
  Exports have been weakening of late. By region, exports to Asia are in a weak tone. Exports to the U.S. and the EU are both picking up. As for short-term prospects, despite rather weak movement that is likely to remain for a while due mainly to the slowdown of production in Asia, exports are expected to pick up again along with a moderate recovery of the world economy.
  Imports are picking up moderately. By region, imports from Asia are increasing moderately. Imports from the U.S. are growing at a slower pace recently. Imports from the EU are picking up.
  As for the international balance of payments, the surplus in the trade account has been flat, as both export and import values have been flat. 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 has been in a weak tone.
  Industrial production has been in a weak tone.
  As for short-term prospects, while, with exports weakening, further downward pressure, which is caused by an influence of the termination of the subsidies to environmentally friendly vehicles, is expected to continue for the time being, production is expected to pick up again along with a moderate recovery of the world economy. Also, the Survey of Production Forecasts expects a decrease both in September and October.

Corporate profits are improving. Firms' judgment on current business conditions is improving. However, cautious views about the immediate future are spreading. The number of bankrupt companies has been almost flat.
  According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the April-June quarter of 2010 increased by 83.4% in comparison with the previous year, thus an increase for the third consecutive quarter, against a backdrop of a pickup in sales. By type of industry, profits in the manufacturing industry increased by 553.0%, and profits in the non-manufacturing industry increased by 33.1%. According to the BOJ Tankan, fiscal 2010 sales are expected to post an increase for the first time in three years, and fiscal 2010 current profits are expected to post an increase for the first time in four years.
  The BOJ Tankan shows firms' judgments on current business conditions as having improved. Both large manufacturers and large non-manufacturers' judgments on current business conditions improved for the sixth consecutive quarter. Small manufacturers and small non-manufacturers' judgments on current business conditions improved for the fifth consecutive quarter. However, cautious views about the immediate future are spreading.
  The number of bankrupt companies has been almost flat.

The employment situation still remains severe, while movements of an incipient recovery can be seen recently.

  The employment situation still remains severe, while movements of an incipient recovery can be seen recently. The total unemployment rate hovered at a high 5.1% in August, a decrease of 0.1 percentage points from the previous month. The total unemployment rate of those aged 15 to 24 was 8.3%, a decrease of 0.8 percentage points from the previous month.
  The number of new job offers and the effective ratio of job offers to applicants are picking up. The number of employees has been almost flat. Overtime hours worked in the manufacturing industry have remained around the same level.
  As for the movement of wages, contractual cash earnings and the total amount of cash earnings have been showing movements of picking up.



3.Prices and the financial market

Domestic corporate goods prices have been flat recently. Consumer prices continue to decline moderately.
  Domestic corporate goods prices have been flat recently.
  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 rising from the 9,200-yen level to the 9,600-yen level, the Nikkei Stock Average is moving at the 9,500-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 83 yen level to the 85 yen level, and thereafter it is moving in the direction of appreciation to the 81 yen level.