Monthly Economic ReportExecutive Summary( February 2011 )
(Assessment of the current state of the Japanese economy)
The Japanese economy is showing movements towards a pickup and emerging from a recent pause in activity. However, it remains in a difficult situation such as a high unemployment rate.
- * Exports and industrial production are showing movements of picking up.
- * Corporate profits are improving. Business investment is picking up.
- * Firms' judgment on current business conditions shows a sign of caution.
- * While the employment situation remains severe, movements of an incipient recovery can be seen.
- * Private consumption is almost flat recently.
- * Recent price developments show that the Japanese economy is in a mild deflationary phase.
As for short-term prospects, the economy is expected to be picking up, reflecting improvement in overseas economies and the effects of various policy measures. On the other hand, there are downside risks that could stem from movements in overseas economies, foreign exchange rates and oil prices. 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.The Government steadily implements the "Comprehensive Emergency Economic Measures in Response to the Yen's Appreciation and Deflation," and makes an effort to be approved by the Diet of the FY2011 budget and related bill. The Government decided the "Fiscal 2011 Economic Outlook and Basic Stance for Economic and Fiscal Management" on January 24th.
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.
Detailed explanations
1. Demand trends such as consumption and investment
Real GDP (gross domestic product) in the October-December quarter of 2010 decreased by 0.3% on a quarterly basis (at an annual rate of 1.1%) posting negative growth for the first time in five quarters. Nominal GDP decreased by 0.6% on a quarterly basis, posting negative growth for the first time in two quarters.
private consumption is almost flat recently.
Private consumption is almost flat recently. Consumer confidence is almost flat. 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.) decreased in December in comparison to November.
As for short-term prospects, although there are some concerns about potential influences of, among others, alterations in the eco points system, private consumption is expected to show steady movement 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 increased in the April-June quarter of 2010, before increasing in the July-September quarter of 2010 as well. Capital goods Shipments, supply-side statistics, have been almost flat.
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 growing at a slower pace recently.
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 in a weak tone.
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 January 2011 and public works orders received in December 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 are showing movements of picking up. Imports have been flat. The surplus in the trade and services balance has been flat.
Exports are showing movements of picking up. By region, exports to Asia are showing movements of picking up. Exports to the U.S. and the EU are both picking up. As for short-term prospects, exports are expected to pick up along with a recovery of the world economy.
Imports have been flat. By region, imports from Asia have been flat. Imports from the U.S. and EU have both been gradually decreasing.
As for the international balance of payments, the surplus in the trade account has been flat, as both export and import values have been on the increase. 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 showing movements of picking up.
Industrial production is showing movements of picking up.
As for short-term prospects, production is expected to pick up as exports have been on a recovery trend.
Also, the Survey of Production Forecasts expects an increase in January and a decrease in February.
Corporate profits are improving. Firms' judgment on current business conditions shows a sign of caution. The number of bankrupt companies is almost flat.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the July-September quarter of 2010 increased by 54.1% in comparison with the previous year, thus an increase for the fourth consecutive quarter, against a backdrop of a pickup in sales. By type of industry, profits in the manufacturing industry increased by 209.0%, and profits in the non-manufacturing industry increased by 19.9%. 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 that firms' judgment on current business conditions shows a sign of caution. Both large manufacturers and large non-manufacturers' judgments on current business conditions deteriorated for the first time in seven quarters. Small manufacturers' judgments on current business conditions improved for the sixth consecutive quarter, but small non-manufacturers' judgments on current business conditions deteriorated for the first time in six quarters.
Whilethe employment situation remains severe, movements of an incipient recovery can be seen.
While the employment situation remains severe, movements of an incipient recovery can be seen.
The total unemployment rate hovered at a high 4.9% in December, a decrease of 0.2 percentage points from the previous month. The total unemployment rate of those aged 15 to 24 was 8.8%, a decrease of 1.1 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 showing movements of picking up recently. Overtime hours worked in the manufacturing industry have decreased.
As for the movement of wages, contractual cash earnings have been moving horizontally. The total amount of cash earnings has been showing movements of picking up.
3.Prices and the financial market
Domestic corporate goods prices are rising at a moderate pace recently. Consumer prices are declining at a slower tempo recently.
Domestic corporate goods prices are rising at a moderate pace recently.
Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components" (referred to as "core core"), are declining at a slower tempo recently.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 declining from the 10,300-yen level to the 10,200-yen level, the Nikkei Stock Average rose to the 10,800-yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 82 yen level to the 81 yen level, and thereafter it is moving in the direction of depreciation to the 83 yen level.