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Monthly Economic ReportExecutive Summary( Dec 2012 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy shows weakness recently due to deceleration of the world economy.

  • Exports are moderately decreasing recently. Industrial production is decreasing although its downward trend becomes moderate.
  • Corporate profits are in a weak tone, mainly among manufacturers. Business investment shows weakness.
  • Firms' judgment on current business conditions shows cautiousness further, mainly among manufactures.
  • The improvement in the employment situation appears to be pausing while some severe aspects still remain.
  • Private consumption is almost flat.
  • Recent price developments indicate that the Japanese economy is in a mild deflationary phase.

Concerning short-term prospects, weakness would remain for the time being but the recovery is expected to resume with the improvement of the overseas economy while reconstruction demand props up the domestic economy. However, a degree of uncertainty about the overseas economies remains high, implying downside risks of the Japanese economy. Also, attention should be paid to the employment and income situations over the future, and the adverse effects of deflation on the economy.

(Policy stance)

The Government will make its best effort in promoting the reconstruction from the Great Earthquake and in avoiding the slowdown of the economy. Furthermore, the Government and the Bank of Japan will work together and make their utmost efforts to overcome deflation as early as possible and to return to a sustainable growth path. In addition, the Government will make maximum effort to prevent the economy from falling into vicious cycle between yen appreciation and deflation, and will implement seamless policy measures.

Toward defeating deflation, reforming the economic structure predisposed to deflation is essential as well as appropriate macroeconomic policy management. Accordingly, the Government will deploy a broad range of policy measures intensively by FY2013 to dynamically mobilize "goods", "people", and "money". The Government decided "Program for Accelerating the Rebirth of Japan" on November 30th.

The Government strongly expects the Bank of Japan to continue powerful monetary easing until the exit from deflation is ensured while working closely with the Government.

The Bank of Japan decided the increase in the total size of the Asset Purchase Program and the operational details of the Fund-Provisioning Measure to Stimulate Bank Lending on December 20th.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption is almost flat.

   Private consumption is almost flat as a whole, showing signs that automobile sales are leveling off. Consumer confidence has been in a weak tone recently. Real income of employees holds firm. 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, while it also increased in terms of the three-month moving average.

  As for short-term prospects, private consumption is expected to remain flat. However, movements of employment and income should be closely monitored.

Business investment shows weakness.

   Business investment shows weakness. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment decreased for the third consecutive quarter after a substantial increase in the October-December quarter of 2011. In the July-September quarter of 2012, business investment decreased for both manufacturers and non-manufacturers. Capital Goods Shipments, supply-side statistics, have decreased.

   According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (December survey) by the Bank of Japan, planned business investment in the fiscal year 2012 is expected to increase for the second consecutive year for manufacturers, and that for non-manufacturers is expected to increase for the first time in five years, thus that for all industries is expected to increase for the first time in five years. According to the Business Outlook Survey by the Ministry of Finance and the Cabinet Office, planned business investment in the fiscal year 2012 is expected to increase for both large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, are in a weak tone.

   As for short-term prospects, although business investment is expected to be supported by reconstruction demand, etc., it is likely to continue downward pressure as corporate profits are in a weak tone.

Housing construction has shown a steady undertone.

   Housing construction has shown a steady undertone. Construction of owned houses and houses for sale has been almost flat while construction of houses for rent has shown a steady undertone. Some of these were considered as effects of the last-minute demand before the deadline of construction for earning the housing eco-points at the end of October.

   The total number of sales of condominiums in the Tokyo metropolitan area has weakened recently.

   As for short-term prospects, housing construction is expected to show steady movement, partly due to reconstruction demand. However, the supply-demand situations of construction workers should be closely monitored for the time being.

Public investment has shown a steady undertone.

   Public investment has shown a steady undertone.

   The amount of contracted public works in November 2012 and the amount of public works orders received in October 2012 were higher than in the previous year.

   As for short-term prospects, steady movement is expected due to the execution of related budgets.

Exports are moderately decreasing recently. Imports have been flat. The deficits of the balance of goods and services have been on an upward trend.

   Exports are moderately decreasing recently. By region, exports to Asia have been gradually decreasing. Exports to the U.S. have been moderately decreasing recently. Exports to the EU have been showing signs of leveling off recently. As for short-term prospects, exports are expected to be leveling off, partly due to the improvement of global supply-demand conditions of electronic components, while overseas economies stabilize.

   Imports have been flat. By region, imports from Asia have been flat. Imports from the U.S. have been growing at a slower pace recently. Imports from the EU have been in a weak tone recently. As for short-term prospects, imports are expected to remain broadly flat for the time being.

   The deficits of the balance of goods and services have been on an upward trend.

   The deficit in the balance of trade in October decreased, as export values have slightly decreased and import values have decreased. The deficit in the services trade has decreased.


2. Corporate activities and employment

Industrial production is decreasing although its downward trend becomes moderate.

   Industrial production is decreasing, reflecting weak exports and business investment, etc., although its downward trend becomes moderate.

   As for short-term prospects, production is expected to be leveling off, reflecting the completion of reduction of automobile production, improvement of supply-demand conditions of electronic components, etc. However, attention should be given to inventory accumulation.

   Also, the Survey of Production Forecasts expects a decrease in November and an increase in December.

Corporate profits are in a weak tone, mainly among manufacturers. Firms' judgment on current business conditions shows further cautiousness, mainly among manufacturers. The number of corporate bankruptcies has been almost flat.

  According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the July-September quarter of 2012 increased by 6.3% in comparison with the previous year; however, seasonally adjusted changes from the previous quarter showed a decrease of 1.7%, thus, they are in a weak tone, mainly among manufacturers, reflecting a decrease in sales. By type of industry, profits in the manufacturing industry decreased by 2.1% in comparison with the previous year, and profits in the non-manufacturing industry increased by 10.2%. According to the BOJ Tankan (December survey), sales in fiscal year 2012 are expected to increase for the third consecutive year, and current profits are expected to decrease for the second consecutive year.

   The Tankan (December survey) also reveals that firms' judgment on current business conditions shows a decrease by 3 points for all enterprises in all industries. By industry, large manufacturers' judgment on current business conditions decreased by 9 points, that for large non-manufacturers decreased by 4 points, that for small manufacturers decreased by 4 points, and that for small non-manufacturers decreased by 2 points.

   The number of corporate bankruptcies has been almost flat.

The improvement in the employment situation appears to be pausing while some severe aspects still remain.

   The improvement in the employment situation appears to be pausing while some severe aspects still remain.

   The total unemployment rate stood at 4.2% in October, unchanged from the previous month. The total unemployment rate of those aged 15 to 24 was 7.7%, an increase of 0.7 percentage points from the previous month. The labor force and the number of employed persons have been increasing, while the number of unemployed persons has been flat. The number of employees has been moving horizontally.

   The number of new job offers has been on a decreasing trend recently. The effective ratio of job offers to applicants has been moving horizontally recently. Overtime hours worked in the manufacturing industry have been decreasing.

   As for the movement of wages, although contractual cash earnings have been showing steady movement, the total amount of cash earnings has been moving horizontally.

   Firms' judgment on current employment conditions showed that the excessiveness of the number of employees has decreased in the whole industry in December, but it has increased in the manufacturing industry.

   As for short-term prospects, the improvement in the employment situation is expected to continue pausing, reflecting still-lingering severity. In addition, attention should be given to spreading movements of employment adjustment in the manufacturing industry.


3. Prices and the financial market

Domestic corporate goods prices have been flat recently. Consumer prices have declined slightly.

   Domestic corporate goods prices have been flat recently.

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

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

   Reviewing price movements comprehensively, including a decline in consumer prices (core core) on a year-on-year basis, 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, the Nikkei Stock Average rose from the 9,100-yen level to the 10,100-yen level. The yen against the U.S. dollar is moving in the direction of depreciation from the 81-yen level to the 84-yen level.

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