Cabinet Office, Government of Japan

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Monthly Economic ReportExecutive Summary( Jul 2012 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is on the way to recovery at a moderate pace partly due to reconstruction demand, although difficulties continue to prevail.

  • Industrial production is still picking up slowly. Exports show signs of picking up.
  • Corporate profits are picking up. Business investment is picking up slowly.
  • Firms' judgment on current business conditions shows a small improvement as a whole, mainly driven by large firms.
  • The employment situation is picking up, although it still remains severe partly due to the earthquake disaster.
  • Private consumption is increasing at a moderate pace.
  • Recent price developments indicate that the Japanese economy is in a mild deflationary phase.

Concerning short-term prospects, movements toward sound economic recovery in the Japanese economy are expected to take hold due to reconstruction demand to some extent. However, there are widespread concerns about further slowing down of overseas economies while a high degree of uncertainty about the prospects of the Eurozone debt crisis still remains. These circumstances, including negative effects that could stem from sharp fluctuations in the financial and capital markets are downside risks of the Japanese economy. It should also be noted that there is still a risk of constraints of electric power supply and the adverse effects of deflation on the economy.

(Policy stance)

The Government will decisively work together with the Bank of Japan toward the exit from deflation which is the biggest challenge of Japanese economy in the short term, in addition to making its best effort in promoting the reconstruction from the Great Earthquake and in avoiding the slowdown of the economy. The Government will also make an utmost effort to prevent the economy from falling into vicious cycle between yen appreciation and deflation.

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 mobilize "goods", "people", and "money".

The Government 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 to revise the purchasing method under the Asset Purchase Program to steadily increase the amount outstanding of the Program on July 12th.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption is increasing at a moderate pace.

   Private consumption is increasing at a moderate pace partly due to the effects of policy measures such as the subsidies program for the purchase of eco-friendly cars. The consumer confidence index is picking up, though the pace of recovery is moderate. 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 May in comparison to April, while it also increased in terms of the three-month moving average.

  As for short-term prospects, private consumption is expected to continuously show a moderate upward trend, partly due to the effects of policy measures, while employment and income environments remain stable. However, attention should be given to constraints on electric power supply and the prospect of automobile sales.

Business investment is picking up moderately.

   Business investment is picking up moderately. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment increased in the October-December quarter of 2011, before decreasing in the January-March quarter of 2012. Capital goods Shipments, supply-side statistics, have been almost flat.

   According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) 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 large manufacturers, and that for large non-manufacturers is expected to decrease. The figures for Orders Received for Machinery, a leading indicator, are increasing moderately, although they substantially decreased in May from the previous month.

   As for short-term prospects, business investment is expected to continue picking up, partly due to reconstruction demand, as corporate profits are picking up.

Housing construction is picking up.

   Housing construction is picking up partly due to reconstruction demand. Construction of owned houses is almost flat. Construction of houses for rent and houses for sale is picking up.

   The total number of sales of condominiums in the Tokyo metropolitan area is picking up.

   As for short-term prospects, housing construction is expected to continue picking up, partly due to reconstruction demand, while the employment and income environments remain stable. However, the supply-demand situations of construction workers should be closely monitored.

Public investment has shown steady performance.

   Public investment has shown steady performance.

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

   As for short-term prospects, a strong trend is expected due to the execution of related budgets.

Exports are showing movements of picking up. Imports are showing movements of picking up. The deficits of the balance of goods and services have been flat.

   Exports show signs of picking up, although there are widespread concerns about further slowing down of the world economy. By region, exports to Asia have been flat recently. Exports to the U.S. have been increasing. Exports to the EU have been flat. As for short-term prospects, exports are expected to continue showing movements of picking up, reflecting the moderate recovery trend of the U.S. economy, etc., although it should be also noted that there are widespread concerns about further slowing down of the world economy, the impact of the yen's appreciation, and so on.

   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 gradually increasing. Imports from the EU have been flat. As for short-term prospects, imports are expected to show steady movement.

   The deficits of the balance of goods and services have been flat. The deficit in the balance of trade in May decreased, as export values have been flat and import values have decreased. The deficit in the services trade has been flat.


2. Corporate activities and employment

Industrial production is picking up slowly.

   Industrial production is picking up slowly, mainly because automobile sales in Japan and overseas have shown steady performance.

   As for short-term prospects, production is expected to continue picking up, reflecting the increase in domestic demand, etc. At the same time, attention should be given to widespread concerns about further slowing down of the world economy, constraints on electric power supply, the future movement of automobile sales, and so on.

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

Corporate profits are picking up. Firms' judgment on current business conditions shows a small improvement mainly driven by large firms. The number of corporate bankruptcies is almost flat.

   According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the January-March quarter of 2012 increased by 9.3% in comparison with the previous year, thus posting an increase for the first time in four quarters, against a backdrop of a pickup in sales. Seasonally adjusted changes from the previous quarter showed an increase of 9.5%. By type of industry, profits in the manufacturing industry increased by 3.6%, and profits in the non-manufacturing industry also increased by 11.8%. According to the BOJ Tankan (June survey), sales in the fiscal year 2012 are expected to increase for the third consecutive year, and current profits in the fiscal year 2012 are expected to increase for the first time in two years.

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

   The number of corporate bankruptcies is almost flat, under the condition that the impact of the earthquake disaster still remains.

The employment situation is picking up, although it still remains severe partly due to the earthquake disaster.

   The employment situation is picking up, although it still remains severe partly due to the earthquake disaster.

   The total unemployment rate has decreased by 0.2 percentage points from the previous month to 4.4% in May. The total unemployment rate of those aged 15 to 24 was 8.3%, a decrease of 0.9 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons have been decreasing. The number of employees has been decreasing recently.

   The effective ratio of job offers to applicants has been rising because of an increase in the number of new job offers, etc. Overtime hours worked in the manufacturing industry have been showing movements of picking up, though they decreased in May from the previous month.

   As for the movement of wages, the contractual cash earnings and the total cash earnings are moving steadily.

   Firms' judgment on current employment conditions was flat in the whole industry in June, but showed that the excessiveness of the number of employees has increased in the manufacturing industry.

   As for short-term prospects, the employment situation is expected to pick up although it still remains severe.


3. Prices and the financial market

Domestic corporate goods prices have been declining at a moderate pace recently. Consumer prices have been flat recently.

   Domestic corporate goods prices have been declining 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"), have been flat recently.

   As for short-term prospects, consumer prices (core core) are expected to remain flat for the time being.

   Consumer prices (core core) continued to decline on a year-on-year basis. Taken together, these movements show that the Japanese economy is in a mild deflationary phase, although the tempo of deflation has been slower.

As for stock prices, the Nikkei Stock Average is moving within the range from the 8,600-yen level to the 9,100-yen level. The yen against the U.S. dollar is moving within the range from the 79-yen level to the 80-yen level.

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