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Monthly Economic ReportExecutive Summary( August 2011 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is picking up while difficulties continue to prevail due to the Great East Japan Earthquake.

  • Industrial production is picking up as the reconstruction of supply chains has progressed. Exports exhibit signs of picking up.
  • Corporate profits have decelerated. Business investment is leveling off after the weakness due to the earthquake disaster.
  • Firms are cautious in their judgment on current business conditions, partly reflecting lingering severity due to the earthquake disaster.
  • The employment situation experiences a pause in improvement and remains severe.
  • Private consumption is on the way to picking up.
  • Recent price developments indicate that the Japanese economy is in a mild deflationary phase.

Concerning short-term prospects, reflecting supply chain reconstruction, a moderate recovery of overseas economies and the effects of policy measures, the Japanese economy is expected to continue to pick up. However, there are downside risks that could stem from constraints of electric power supply, the consequences of the nuclear accident, further slowing down of overseas economies, and volatile fluctuations in exchange rates and stock prices. It should also be noted that there is still a risk of the adverse effects of deflation on the economy and a concern about a possible deterioration of the employment situation.

(Policy stance)

Based on the “Guideline on Policy Promotion”, the Government will overcome the restriction brought about by the great earthquake in a sequential and steady manner, as well as restoring the growth potential of the Japanese economy. Therefore, the government will work for prompt recovery from the Great Earthquake by promoting measures such as the early implementation of the FY2011 first and second supplementary budget. Also, the Government decided the “Basic Reconstruction Guidelines in response to the Great East Japan Earthquake” toward reconstruction from the great earthquake on July 29th. 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. The Bank of Japan decided to increase the amount of the Asset Purchase Program on August 4th.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption is showing movements of picking up.

   Private consumption is showing movements of picking up. Consumer confidence has leveled off. Real income of employees is 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 Shipments, etc.) increased in June in comparison to May.

   As for short-term prospects, private consumption is expected to pick up moderately. However, attention should be given to the employment and income situations, and constraints on electric power supply.

Business investment is leveling off.

   Business investment is leveling off after the weakness due to the earthquake disaster. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment decreased both in the October-December quarter of 2010 and the January-March quarter of 2011, while Capital goods Shipments, supply-side statistics, show some upward movements.

   According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment in the fiscal year 2011 is expected to increase for the first time in four years for manufacturers, and that for non-manufacturers is expected to decrease for the fourth consecutive year, thus that for all industries is expected to remain unchanged from the previous year. According to the Business Outlook Survey, planned business investment in the fiscal year 2011 is expected to increase for both large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, are growing at a slower pace recently, but are expected to pick up for the immediate future on the back of rehabilitation demand.

   As for short-term prospects, business investment is expected to resume picking up, due to the restoration demand from the earthquake disaster.

Housing construction has leveled off.

   Housing construction has leveled off due to the easing impact of the earthquake disaster. While construction of owned houses has weakened, construction of houses for rent has leveled off. Construction of condominiums has been showing movements of picking up. The total number of sales of condominiums in the Tokyo metropolitan area has been flat.

  As for short-term prospects, employment and income environments should be closely monitored .

Public investment has been generally sluggish.

   Public investment has been generally sluggish.

   The amount of contracted public works in July 2011 and the amount of public works orders received in June 2011 were lower than a year ago.

   As for short-term prospects, a boosting effect by the supplementary budget is expected.

Exports are showing movements of picking up. Imports have been flat. The balance of goods and services remains on a deficit trend.

   Exports are showing movements of picking up due to restored supply chains, although partly in a weak tone as the recovery of overseas economies is further slowing down. By region, exports to Asia have leveled off. Exports to both the U.S. and the EU have been picking up. As for short-term prospects, exports are expected to resume picking up, reflecting a pickup of production and a moderate recovery of overseas economies. It should be also noted that there are downside risks of overseas economies and impact of the yen’s appreciation.

   Imports have been flat. By region, imports from Asia, the U.S. and the EU have been flat. As for short-term prospects, imports are expected to remain flat for the time being.

   The balance of trade moved to surplus, as export values have increased while import values have been flat. The deficit in the services trade has been flat. Thus, the deficit in the balance of goods and services decreased, but it still remains on a deficit trend. As for short-term prospects, the balance of goods and services will continue to be on a deficit trend for the time being.


2.Corporate activities and employment

Industrial production is picking up as the reconstruction of supply chains has progressed.

   Industrial production is picking up as the reconstruction of supply chains has progressed, although some weak movements are seen due to further deceleration of recovery of overseas economies.

   As for short-term prospects, production is expected to continue picking up along with the reconstruction of supply chains and a moderate recovery of overseas economies. At the same time, attention should be given to possible constraints on electric power supply and downside risks of overseas economies.

   Also, the Survey of Production Forecasts expects an increase, especially in the transport machinery sector, in both July and August.

Corporate profits have decelerated. Firms’ judgment on current business conditions shows a sign of caution, partly reflecting lingering severity due to the earthquake disaster. The number of corporate bankruptcies 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 2011 increased by 11.4% in comparison with the previous year-an increase for the sixth consecutive quarter-but have decelerated, due to a downturn in sales growth. By type of industry, profits in the manufacturing industry decreased by 12.5%, and profits in the non-manufacturing industry increased by 26.8%. According to the Tankan, sales in the fiscal year 2011 are expected to increase for the second consecutive year, and current profits in the fiscal year 2011 are expected to decrease for the first time in two years.

   The Tankan also reveals that firms’ judgment on current business conditions shows a sign of caution, partly reflecting lingering severity due to the earthquake disaster. Both large manufacturers and large non-manufacturers’ judgments on current business conditions deteriorated for the first time in two quarters. Small manufacturers’ judgments on current business conditions deteriorated for the first time in nine quarters, and small non-manufacturers’ judgments on current business conditions deteriorated for the first time in two quarters.

   The number of corporate bankruptcies is on a moderate upward trend, partly due to the earthquake disaster.

The employment situation experiences a pause in improvement and still remains severe, due to the earthquake disaster.

   The employment situation experiences a pause in improvement and still remains severe, due to the earthquake disaster.

   The total unemployment rate hovered at a high 4.6% in June, an increase of 0.1 percentage points from the previous month. The total unemployment rate of those aged 15 to 24 (*) was 7.7%, a decrease of 0.3 percentage points from the previous month.

   Although the number of new job offers decreased in June, the effective ratio of job offers to applicants remained flat, partly because of the large number of unfilled job offers carried forward from May. The number of employees has been flat recently. Overtime hours worked in the manufacturing industry show movements of picking up, reflecting a pickup in production. As for short-term prospects, there are concerns about the influence of the earthquake disaster.

   As for the movement of wages, although contractual cash earnings are moving horizontally recently, the total amount of cash earnings is showing weakness partly due to a decrease in special cash earnings, including bonuses. As for short-term prospects, attention should be given to hours worked and the employment situation influenced by the earthquake disaster.

  (*: National figures excluding Iwate, Miyagi and Fukushima Prefectures)


3.Prices and the financial market

Domestic corporate goods prices have been rising at a slower tempo recently. Consumer prices have been flat month-on-month basis recently, but continued to decline year-on-year basis.

   Domestic corporate goods prices have been rising at a slower tempo recently, reflecting movements in the international commodity markets.

   Consumer prices, in terms of “general, excluding fresh food, petroleum products and other specific components” (referred to as "core core"), have been flat recently.

   As for short-term prospects, consumer prices (core core) are expected to remain flat for the time being but the influence of international commodity prices and other factors on future price movements should be carefully monitored.

   Consumer prices remain on a declining trend on a year-on-year basis. 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 9,900-yen level to the 10,100-yen level, the Nikkei Stock Average declined to the 9,000-yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 79 yen level to the 77 yen level, and thereafter it moved in the direction of depreciation to the 79 yen level. Thereafter, it is moving at the 78 yen level.

Cabinet Office, Government of Japan1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan.
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