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Monthly Economic ReportExecutive Summary( March 2012 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is still picking up slowly, while difficulties continue to prevail due to the Great East Japan Earthquake.

  • Industrial production is still picking up slowly. Exports are weakening recently.
  • Corporate profits have decreased. Business investment is picking up recently.
  • Firms' judgment on current business conditions shows a small improvement although that for large manufactures is deteriorating. Overall, firms are cautious about the immediate future.
  • The employment situation still remains severe partly due to the earthquake disaster, although it also exhibits signs of picking up.
  • Private consumption holds firm.
  • Recent price developments indicate that the Japanese economy is in a mild deflationary phase.

Concerning short-term prospects, reflecting the effects of policy measures, a picking up trend in the Japanese economy is expected to take hold. However, there are downside risks that could stem from the influence of the Eurozone debt crisis, oil price hikes, and further slowing down of overseas economies. It should also be noted that there is still a risk of constraints of electric power supply, the consequences of the nuclear accident, the adverse effects of deflation on the economy and a concern about a possible deterioration of the employment situation.

(Policy stance)

The Government, considering the downside risks stemming from the European sovereign debt crises and others, will make its best effort to avoid the slowdown of the economy, in addition to working through the reconstruction from the Great Earthquake. The Government will also decisively work to overcome deflation and make an utmost effort to prevent the economy from falling into vicious cycle between yen appreciation and deflation.

To this end, the Government swiftly implements "Comprehensive Package Responding to the Yen Appreciation" and the FY2011 third and fourth supplementary budget, and works for early passage of the FY2012 budget and the related bills.

The Government will work together with the Bank of Japan, aiming at quickly realizing stable price increase. Toward the exit from deflation, the Government expects that the Bank of Japan will conduct appropriate and decisive monetary policy management while working closely with the Government.

The Bank of Japan, subsequent to the decisions to clarify its monetary policy stance and to further enhance monetary easing in February 2012, decided to enhance "the Growth-Supporting Funding Facility" on March 13th.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption holds firm.

   Private consumption holds firm 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 recently. Real income of employees is almost leveling off. 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 move steadily partly due to the effects of policy measures. However, attention should be given to the employment and income situations, and constraints on electric power supply.

Business investment is picking up recently.

   Business investment is picking up recently. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment decreased in the July-September quarter of 2011, before increasing in the October-November quarter of 2011. Capital goods Shipments, supply-side statistics, have been almost flat.

   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 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 almost flat.

   As for short-term prospects, business investment is expected to continue to be on a pickup trend, partly due to demand from post-earthquake disaster restoration and reconstruction.

Housing construction has been flat recently.

   Housing construction has been flat recently.

  The total number of sales of condominiums in the Tokyo metropolitan area has been showing movements of picking up.

  As for short-term prospects, housing construction is expected to show a steady undertone. However, the supply-demand situations of construction workers, in addition to employment and income environments, should be closely monitored.

Public investment has shown steady performance.

   Public investment has shown steady performance due to the effect of the FY 2011 supplementary budget, etc.

   The amount of contracted public works in February 2012 and the amount of public works orders received in January 2012 were higher than in the previous year, due to the effects of the FY2011 supplementary budget, etc.

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

Exports are weakening recently. Imports are growing at a slower pace recently. The deficits of the balance of goods and services are increasing.

   Exports are weakening recently, reflecting the stagnant economy in Europe and the stagnation of economic growth in Asia, etc. By region, exports to Asia are weakening recently. In particular, exports to Thailand are picking up. Exports to the U.S. have been gradually increasing. Exports to the EU are leveling off. As for short-term prospects, although exports are expected to be supported by the recovery of the U.S. economy, etc., it should be noted that there are downside risks of overseas economies, and so on.

   Imports are growing at a slower pace recently. By region, imports from Asia have been gradually increasing. Imports from the U.S. have been flat. Imports from the EU are weakening. As for short-term prospects, imports are expected to increase moderately.

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


2.Corporate activities and employment

Industrial production is still picking up slowly.

   Industrial production is still picking up slowly, mainly because automobile sales in Japan and overseas are picking up, although the recovery of overseas economies has weakened. The increase of Indices of Industrial Production strengthened in December 2011 and January 2012, due to increased production to make up for the previous shortfall caused by the flood disaster in Thailand.

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

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

Corporate profits have decreased. Firms' judgment on current business conditions shows a small improvement although that for large manufacturers is deteriorating. Overall, firms are cautious about the immediate future. The number of corporate bankruptcies is almost flat.

   According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the October-December quarter of 2011 decreased by 10.3% in comparison with the previous year, thus posting a decline for the third consecutive quarter, due to a decrease in sales. Seasonally adjusted changes from the previous quarter showed a decrease of 2.1%. By type of industry, profits in the manufacturing industry decreased by 21.5%, and profits in the non-manufacturing industry also decreased, by 4.3%. 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.

   The Tankan also reveals that firms' judgment on current business conditions shows a small improvement overall. Although non-manufacturers and small and medium-sized enterprises' judgments on current business conditions improved, that for large manufacturers is deteriorating. Overall, firms are cautious about the immediate future.

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

The employment situation still remains severe partly due to the earthquake disaster, although it also exhibits signs of picking up.

   The employment situation still remains severe partly due to the earthquake disaster, although it also exhibits signs of picking up.

   The total unemployment rate has increased by 0.1 percentage points from the previous month to 4.6% in January. The total unemployment rate of those aged 15 to 24 was 9.5%, an increase of 0.6 percentage points from the previous month. The labor force and the number of employed persons have been decreasing, while the number of unemployed persons has been increasing. The number of employees has remained flat 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 recently.

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

   As for short-term prospects, attention should be given to the impact of the earthquake disaster and production movements.


3.Prices and the financial market

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

   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 moderately.

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

  Consumer prices remain on a declining 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, the Nikkei Stock Average is rising from the 9,300-yen level to the 10,100-yen level. The yen against the U.S. dollar is moving in the direction of depreciation from the 79-yen level to the 83-yen level.

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