Cabinet Office, Government of Japan

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Monthly Economic ReportExecutive Summary( September 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 decreased. 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 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 less resilient 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)

The Government will immediately decide the comprehensive measures against the yen appreciation and formulate the FY2011 third supplementary budget to respond the downside risk of the economy stemming from the rapid appreciation of yen and the risk of hollowing-out of industry and to maximize the merits of yen appreciation, working through the reconstruction from the great earthquake. 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.

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 Index is picking up recently, though it remains at low levels. 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.) remained almost flat in July.

   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 January-March quarter of 2011 and the April-June quarter of 2011, while Capital goods Shipments, supply-side statistics, are picking up.

   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 increasing moderately.

   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. Construction of owned houses, houses for rent and houses for sale is showing movements of picking up. .

  As for short-term prospects, housing construction is expected to pick up moderately. However, 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 August 2011 was higher than in the previous year partly due to the effect by the FY2011 supplementary budget. The amount of public works orders received in July 2011 was lower than the previous year.

   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 the recovery of overseas economies has weakened. By region, exports to Asia have been flat. Exports to both the U.S. and the EU have been picking up. As for short-term prospects, it should be noted that there are downside risks of overseas economies and the impact of the yen’s appreciation.

   Imports have been flat. By region, imports from Asia have been flat. Imports from the U.S. have been in a weak tone. Imports from the EU have been gradually increasing. As for short-term prospects, imports are expected to remain flat for the time being.

   The balance of trade turned negative, as export values have increased moderately and import values have increased. The deficit in the services trade has been flat. Thus, the balance of goods and services 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 weakened recovery of overseas economies.

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

   Also, the Survey of Production Forecasts expects an increase in August and a decrease in September.

Corporate profits have decreased. 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 is almost flat.

   According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the April-June quarter of 2011 decreased by 14.6% in comparison with the previous year, thus posting a decline for the first time in seven quarters, due to a decrease in sales. By type of industry, profits in the manufacturing industry decreased by 15.3%, and profits in the non-manufacturing industry also decreased, by 14.2%. Seasonally adjusted changes from the previous quarter showed a decrease of 11.9%. 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. Earnings forecasts of listed companies for the fiscal year ending March 2012 show that profits are expected to increase in the second half.

   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 almost flat, although the impact of the earthquake disaster still remained.

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 4.7% in July, an increase of 0.1 percentage points from the previous month. The number of unemployed persons (*) has been increasing and the number of employed persons (*) has been decreasing under the situation that the labor force has been almost flat. The total unemployment rate of those aged 15 to 24 (*) was 7.8%, an increase of 0.1 percentage points from the previous month.

   The effective ratio of job offers to applicants has been rising moderately since June because of an increase in the number of new job offers. 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 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 the impact of the earthquake disaster and production movements.

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


3.Prices and the financial market

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

   Domestic corporate goods prices have been flat.

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

   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 decreasing from the 8,900-yen level to the 8,600-yen level, the Nikkei Stock Average rose to the 9,000-yen level. Thereafter, after declining to the 8,500 yen level, it is moving at the 8,600 yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 76 yen level to the 77 yen level, and thereafter it is moving in the direction of appreciation to the 76 yen level.

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