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Monthly Economic ReportExecutive Summary( December 2011 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

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

  • Industrial production is still picking up slowly. Exports level off.
  • Corporate profits have decreased. Business investment is leveling off while weak movements are seen recently.
  • Firms' judgment on current business conditions shows a small improvement although that for large manufactures is deteriorating. Overall, firms are cautious about the immediate future.
  • The employment situation still remains severe partly due to the earthquake disaster, although it also exhibits signs of picking up.
  • Private consumption is almost leveling off.
  • Recent price developments indicate that the Japanese economy is in a mild deflationary phase.

Concerning short-term prospects, reflecting the effects of policy measures, the Japanese economy is expected to continue to pick up moderately. However, there are downside risks that could stem from several events, such as constraints of electric power supply, the consequences of the nuclear accident, and further slowing down of less resilient overseas economies and volatile fluctuations in exchange rates and stock prices due to the Eurozone debt crisis. 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)

The Government, in addition to working through the reconstruction from the Great Earthquake, swiftly implements “Comprehensive Package Responding to the Yen Appreciation” and the FY2011 third supplementary budget, in order to preemptively address the downside risk of the economy and the risk of hollowing-out of industry stemming from the rapid appreciation of yen. The Government also decided the FY2011 fourth supplementary budget on December 20th.

Closely observing the influence on the international financial and capital markets by the overseas monetary policy and financial condition, the Government expects that the Bank of Japan will support the economy by appropriate and decisive monetary policy management while working closely with the government.

The Bank of Japan, in cooperation with other central banks, decided to reduce interest rates on the U.S. Dollar funds-supplying operations on November 30th.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption is almost leveling off.

   Private consumption is almost leveling off. The consumer confidence index is almost leveling off. Real income of employees is almost leveling off. 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 October in comparison to September.

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

Business investment is leveling off while weak movements are seen recently.

   Business investment is leveling off while weak movements are seen recently. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment decreased both in the April-June quarter of 2011 and the July-September quarter of 2011, while Capital goods Shipments, supply-side statistics, have been in a weak tone recently.

   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 almost flat.

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

Housing construction is showing movements of picking up.

   Housing construction is showing movements of picking up due to the waning impact of the earthquake disaster.

  The total number of sales of condominiums in the Tokyo metropolitan area has been showing movements of picking up recently.

  As for short-term prospects, housing construction is expected to pick up moderately. However, the supply-demand situations of construction workers, in addition to employment and income environments, should be closely monitored.

Public investment has shown steady undertone, partly due to the effect of the FY2011 supplementary budget.

   Public investment has shown steady undertone, partly due to the effect of the FY 2011 supplementary budget.

   The amount of contracted public works in November 2011 and the amount of public works orders received in October 2011 were higher than in the previous year, partly due to the effect of the FY2011 supplementary budget.

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

Exports have been flat. Imports have been increasing moderately. The balance of goods and services remains on a deficit trend.

   Exports have been flat because the recovery of overseas economies has weakened. By region, exports to Asia have remained flat as a trend, although the effects of the flood damage in Thailand are beginning to be felt. Exports to the U.S. have been flat recently. Exports to the EU have been in a weak tone. As for short-term prospects, it should be noted that there are downside risks of overseas economies, the impact of the yen's appreciation, and the completion of the reconstruction of supply chains.

   Imports have been increasing moderately. By region, imports from Asia have been increasing moderately although imports from Thailand have been decreasing due to the flood damage. Imports from the U.S. have been flat. Imports from the EU have been gradually increasing. As for short-term prospects, although imports are expected to increase moderately, attention should be given to movements of domestic production and consumption.

   The balance of trade remained on a deficit trend. The balance of trade in October turned negative, as export values have decreased while import values have increased. The deficit in the services trade has been flat. 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 still picking up slowly.

   Industrial production is still picking up slowly as the reconstruction of supply chains has progressed, due to weakened recovery of overseas economies, etc.

   As for short-term prospects, production is expected to continue picking up slowly. At the same time, attention should be given to possible downside risks of overseas economies, the impact of the yen's appreciation, and constraints on electric power supply.

   Also, the Survey of Production Forecasts expects a decrease in November and an increase in December due to the impact of the flood disaster in Thailand, etc.

Corporate profits have decreased. Firms' judgment on current business conditions shows a small improvement although that for large manufactures is deteriorating. Overall, firms are cautious about the immediate future. The number of corporate bankruptcies is decreasing moderately.

   According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the July?September quarter of 2011 decreased by 8.5% in comparison with the previous year, thus posting a decline for the second consecutive quarter, due to a decrease in sales. Seasonally adjusted changes from the previous quarter showed an increase of 3.6%. By type of industry, profits in the manufacturing industry decreased by 18.7%, and profits in the non-manufacturing industry also decreased, by 2.7%. According to the BOJ 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 small improvement overall. Although non-manufacturers and small and medium-sized enterprises' judgments on current business conditions improved, that for large manufacturers is deteriorating. Overall, firms are cautious about the immediate future.

   The number of corporate bankruptcies is decreasing moderately, although the impact of the earthquake disaster still remained.

The employment situation still remains severe partly due to the earthquake disaster, although it also exhibits signs of picking up.

   The employment situation still remains severe partly due to the earthquake disaster, although it also exhibits signs of picking up.

   The total unemployment rate has increased 0.4 percentage points from the previous month to 4.5% in October. The total unemployment rate of those aged 15 to 24 was 8.2%, an increase of 1.4 percentage points from the previous month. The labor force and the number of unemployed persons have been increasing, while the number of employed persons has been flat. The number of employees has been on a decreasing trend.

   The effective ratio of job offers to applicants has been rising because of an increase in the number of new job offers, etc. Overtime hours worked in the manufacturing industry have been moving horizontally.

   As for the movement of wages, contractual cash earnings are moving horizontally, while the total amount of cash earnings is showing weakness.

   As for short-term prospects, attention should be given to the impact of the earthquake disaster and production movements.


3.Prices and the financial market

Domestic corporate goods prices have declined moderately. Consumer prices have declined moderately.

   Domestic corporate goods prices have declined moderately as a trend.

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

   As for short-term prospects, consumer prices (core core) are expected to remain on a moderate downward trend for the time being.

  Consumer prices remain on a declining 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 8,100-yen level to the 8,700-yen level, the Nikkei Stock Average declined to the 8,200-yen level. The yen against the U.S. dollar is moving at the range from the 77 yen level to the 78 yen level.

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