Cabinet Office, Government of Japan

English Home  >  Monthly Economic Report  >  Monthly Economic Report Executive Summary( July 2011 )

Monthly Economic ReportExecutive Summary( July 2011 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

Upward movements are observed in the Japanese economy while difficulties continue to prevail, due to the Great East Japan Earthquake.

  • Industrial production and exports show some upward movements after they declined due to the earthquake disaster.
  • 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 has leveled off from the decline due to the earthquake disaster.
  • Recent price developments show that the Japanese economy is in a mild deflationary phase.

Concerning short-term prospects, reflecting a moderate recovery of overseas economies and the effects of policy measures, the economy is expected to resume picking up as progress is being made in restoring the supply chains and, thereby, production activities are recovering. However, there are downside risks that could stem from constraints of electric power supply, the consequences of the nuclear accident and high oil prices, and further slowing down of overseas economies. 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 supplementary budget. Also, the Government decided the second supplementary budget for FY2011 to ensure steps towards restoration on July 5th. 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

Private consumption has leveled off from the decline due to the earthquake disaster.

   Private consumption has leveled off from the decline. 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 May in comparison to April.

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

Business investment is leveling off after the weakness due to the earthquake disaster.

   Business investment is leveling off after the weakness. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment increased in the October-December quarter of 2010, before decreasing in the January-March quarter of 2011. 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 fiscal 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 fiscal 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 is showing weakness, partly due to the earthquake disaster.

   Housing construction is showing weakness, partly due to the earthquake disaster. Construction of owned houses and houses for rent has weakened. Construction of houses for sale has been showing some movements of picking up. Total sales of condominiums in the Tokyo metropolitan area decreased as a result of selling restraint due to the earthquake disaster, but have been showing movements of picking up recently.

  As for short-term prospects, we should closely monitor employment and income environments.

Public investment has been generally sluggish.

   Public investment has been generally sluggish.

   The amount of contracted public works in June 2011 and the amount of public works orders received in May 2011 were lower than in the previous year.

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

Exports show some upward movements. Imports have been flat. The trade and services accounts remain on a deficit trend.

   Exports show some upward movements. By region, exports to Asia have been decreasing recently. Exports to both the U.S. and the EU have been showing upward movements. As for short-term prospects, exports are expected to resume picking up, reflecting a recovery of production activities and a moderate recovery of overseas economies. However, it should be noted that there is a risk of further slowing down of recovery of overseas economies.

   Imports have been flat. By region, imports from Asia have leveled off. Imports from the U.S. and the EU have been flat. As for short-term prospects, imports are expected to resume picking up, along with an increase in imports of mineral fuels, etc.

   The trade account continued to be in deficit, because export values have increased, but import values have also increased due to the rise of import prices. The deficit in the services account has been flat, thus the trade and services accounts remain on a deficit trend. As for short-term prospects, the trade and services accounts will continue to be on a deficit trend for the time being.


2.Corporate activities and employment

Industrial production declined due to the earthquake disaster but now shows some upward movements.

   Although industrial production had declined due to the earthquake disaster, it shows some upward movements as the supply chain has been restored.

   As for short-term prospects, production is expected to pickup as the supply chain has recovered. However, attention should be given to constraints on electric power supply and further slowing down of recovery of overseas economies.

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

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 bankrupt 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 16.2% in comparison with the previous year-an increase for the sixth consecutive quarter-but have decelerated, against a downturn in sales growth. By type of industry, profits in the manufacturing industry decreased by 5.3%, and profits in the non-manufacturing industry increased by 30.1%. According to the BOJ Tankan, fiscal 2011 sales are expected to post an increase for the second consecutive year, and fiscal 2011 current profits are expected to post a decrease for the first time in two years.

   The BOJ Tankan shows 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 bankrupt companies is on a moderate upward trend, partly due to the earthquake disaster.

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

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

   The total unemployment rate hovered at a high 4.5% in May, a decrease of 0.2 percentage points from the previous month. The total unemployment rate of those aged 15 to 24 (*) was 8.0%, a decrease of 1.2 percentage points from the previous month.

   Although the number of new job offers increased, the effective ratio of job offers to applicants has been moving horizontally, because of an increase in effective job applicants. The number of employees has been on a decreasing trend recently due to a decrease in employees in the wholesale and retail industries. Overtime hours worked in the manufacturing industry continue to show weakness, reflecting stagnation in production. As for short-term prospects, there are concerns about the influence of the earthquake disaster.

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

  (*: National values 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 recently, but continued to decline year-on-year.

   Domestic corporate goods prices have been rising at a slower tempo recently.

   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 broadly flat for the time being. However, we need to keep a close watch on the influence of the international commodity prices and supply constraints following the earthquake disaster on future price movements.

   Consumer prices remain on a declining trend compared with the previous year. 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 9,400-yen level to the 10,100-yen level, the Nikkei Stock Average is moving at the 10,000-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 80 yen level to the 81 yen level, and thereafter it is moving at the 80 yen level.

Cabinet Office, Government of Japan1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan.
Tel: +81-3-5253-2111