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Monthly Economic ReportExecutive Summary( March 2011 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

Although the Japanese economy is turning to pick up, it is only weakly self-sustaining and the influence of the Tohoku - Pacific Ocean Earthquake is concerned. Also, it remains in a difficult situation such as a high unemployment rate.

  • Exports are showing movements of picking up. Industrial production has picked up, but the influence of the Tohoku - Pacific Ocean Earthquake is concerned.
  • 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 pick up, reflecting improvement in overseas economies and the effects of various policy measures. However, attention should be given to the influence of the Tohoku - Pacific Ocean Earthquake on the economy. Also, there are downside risks that could stem from fluctuations in the financial and capital markets, the influence of a rise in oil prices and movements in overseas economies. 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.In addition, the Government will make every possible effort to stabilize people’s daily lives and economic activity while closely monitoring the effects of the earthquake occurred on March 11th.The Government expects that the Bank of Japan will support the economy by appropriate and flexible measures while working closely with the Government. The Bank of Japan decided to increase the amount of the Asset Purchase Program on March 14th.

Detailed explanations

1. Demand trends such as consumption and investment

private consumption is almost flat recently.

  Private consumption is almost flat recently. Consumer confidence remains 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.) increased in January in comparison to December.

  As for short-term prospects, 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 July-September quarter of 2010, before increasing in the October-December quarter of 2010 as well. Capital goods Shipments, supply-side statistics, has been in a weak tone recently.

  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. According to the Business Outlook Survey, planned business investment in fiscal 2011 is expected to increase for large manufacturers, and that for large non-manufacturers is expected to decrease. 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 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 February 2011 was higher than in the previous year. The amount of public works orders received in January 2011 was 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 are showing movements of picking up. The surplus in the trade and services balance has been flat.

  Exports are showing movements of picking up. By region, exports to Asia are picking up. Exports to the U.S. have been growing at a slower pace recently. Exports to the EU are picking up. As for short-term prospects, exports are expected to pick up along with a recovery of the world economy. However, at present, there are concerns about the influence of a decline in production activity, among others, after the Tohoku - Pacific Ocean Earthquake.

  Imports are showing movements of picking up. By region, imports from Asia are showing movements of picking up. Imports from the U.S. have been flat. Imports from EU have 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 has picked up, but the influence of the Tohoku - Pacific Ocean Earthquake is concerned.

  Industrial production has picked up, but the influence of the Tohoku - Pacific Ocean Earthquake is concerned.
As for short-term prospects, production is expected to continue to be on a pickup trend as exports have been on a recovery trend. However, at present, there are concerns about a fall in production activity due to the influence of the Tohoku - Pacific Ocean Earthquake.

  Also, the Survey of Production Forecasts expects an increase in both February and March.

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 October-December quarter of 2010 increased by 27.3% in comparison with the previous year, thus an increase for the fifth consecutive quarter, against a backdrop of a pickup in sales. By type of industry, profits in the manufacturing industry increased by 20.0%, and profits in the non-manufacturing industry increased by 31.6%. 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.

  The number of bankrupt companies is almost flat.

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 January, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 8.3%, a decrease of 0.6 percentage points from the previous month.

  The number of new job offers has been increasing. The effective ratio of job offers to applicants has been rising. The number of employees has been showing movements of picking up. Overtime hours worked in the manufacturing industry have been increasing.

  As for the movement of wages, contractual cash earnings and the total amount of cash earnings have been moving horizontally.


3.Prices and the financial market

Domestic corporate goods priceshave been rising. Consumer prices are declining at a slower tempo recently.

  Domestic corporate goods prices have been rising.

  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 rising from the 10,600-yen level to the 10,700-yen level, the Nikkei Stock Average fell to the 8,600-yen level, and thereafter it is rising to the 9,200-yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 83-yen level to the 79-yen level, and thereafter it is moving in the direction of depreciation to the 81-yen level.

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