Monthly Economic ReportExecutive Summary( Oct 2012 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

Japanese economy is in a weak tone recently due to deceleration of the world economy, although some components still show steady movements.

  • Exports are in a weak tone while industrial production is decreasing.
  • Corporate profits which have been picking up show signs of leveling off recently. Business investment as a whole is picking up slowly while some weak movements are also seen recently.
  • Firms' judgment on current business conditions shows cautiousness, mainly among manufactures.
  • The employment situation shows signs of improvement, although some severe aspects still remain.
  • Private consumption is almost flat while some weak movements are seen lately.
  • Recent price developments indicate that the Japanese economy is in a mild deflationary phase.

Concerning short-term prospects, movements toward economic recovery would pause for the time being. After that, the recovery is expected to resume with the improvement of the overseas economy while reconstruction demand lasts continuously. However, a degree of uncertainty about the external economic prospects of the Eurozone and Asia notably China remains high. Under such circumstances, further slowing down of overseas economies and sharp fluctuations in the financial and capital markets are downside risks of the Japanese economy. Also, attention should be paid to the changes in business profits and income, 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, 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 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 increase the total size of the Asset Purchase Program on September 19th.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption is almost flat while some weak movements are seen lately.

   Private consumption is almost flat while some weak movements are seen lately. Consumer confidence is almost flat. 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 August in comparison to July, while it decreased in terms of the three-month moving average.

  As for short-term prospects, although private consumption is expected to remain flat under the stable employment and income environments, there are concerns about downward pressure due to the weak movement of automobile sales for the time being.

Business investment as a whole is picking up slowly while some weak movements are also seen.

   Business investment as a whole is picking up slowly while some weak movements are also seen. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment decreased for the second consecutive quarter after a substantial increase in the October-December quarter of 2011. In the April-June quarter of 2012, business investment increased for manufacturers, and decreased for non-manufactures. Capital goods Shipments, supply-side statistics, have been in a weak tone recently.

   According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (September 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, have been in a weak tone recently. Planned construction cost has been flat recently.

   As for short-term prospects, business investment is expected to remain on a pickup trend, partly due to reconstruction demand. However, attention should be paid to the influence of the further slowing down of the world economy, decrease in production, etc.

Housing construction has recently been flat.

   Housing construction had picked up partly due to reconstruction demand, but has recently been flat. Construction of owned houses and houses for rent is almost flat. Construction of 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 show steady movement, 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 September 2012 was lower than in the previous year. The amount of public works orders received in August 2012 was 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 in a weak tone. Imports have been flat. The deficits of the balance of goods and services have been flat.

   Exports are in a weak tone along with a slowing down of the world economy, etc. By region, exports to Asia have been gradually decreasing. Exports to the U.S. have been flat recently. Exports to the EU have been gradually decreasing. As for short-term prospects, there are concerns that exports are expected to continue being influenced by a slowing down of the world economy, etc. for the time being.

   Imports have been flat. By region, imports from Asia have been flat. 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 remain broadly flat for the time being.

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


2. Corporate activities and employment

Industrial production is decreasing.

   Industrial production is decreasing, reflecting weak exports and completion of the effects of policy measures by the subsidies program for the purchase of eco-friendly cars, etc.

   As for short-term prospects, production is expected to continue being weak for the time being, partly due to weak exports and a production adjustment of automobiles. Furthermore, attention should also be given to inventory accumulation.

   Also, the Survey of Production Forecasts expects a decrease in September and no change in October.

Corporate profits, which have been picking up, show signs of leveling off recently. Firms' judgment on current business conditions shows cautiousness, mainly among manufacturers. The number of corporate bankruptcies has been moderately decreasing recently.

   According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the April-June quarter of 2012 increased by 11.5% in comparison with the previous year, thus posting an increase for the second consecutive quarter, partly due to a technical rebound from a year ago. Seasonally adjusted changes from the previous quarter showed a decrease of 2.5%. By type of industry, profits in the manufacturing industry increased by 2.7% in comparison with the previous year, and profits in the non-manufacturing industry also increased by 16.0%. According to the BOJ Tankan (September 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 (September survey) also reveals that firms' judgment on current business conditions shows a small decrease by 2 points for all enterprises in all industries. By industry, large manufacturers' judgment on current business conditions decreased by 2 points, that for large non-manufacturers was flat, that for small manufacturers decreased by 2 points, and that for small non-manufacturers was flat.

   The number of corporate bankruptcies has been moderately decreasing recently.

The employment situation shows signs of improvement, although some severe aspects still remain.

   The employment situation shows signs of improvement, although some severe aspects still remain.

   The total unemployment rate has decreased by 0.1 percentage points from the previous month to 4.2% in August. The total unemployment rate of those aged 15 to 24 was 8.0%, a decrease of 0.2 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 is moving horizontally recently.

   The number of new job offers has been moving horizontally. The effective ratio of job offers to applicants has been on a rising trend because of a decrease in the number of effective job applicants, etc. 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 was flat in the whole industry in September, 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 show steady movement although it still remains severe. However, attention should be given to the adjustment caused by the production decline in part of the manufacturing industry, etc.


3. Prices and the financial market

Domestic corporate goods prices have been declining at a slower tempo recently. Consumer prices have declined slightly recently.

   Domestic corporate goods prices have been declining at a slower tempo recently.

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

   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, although the tempo of deflation has been slower.

As for stock prices, the Nikkei Stock Average is declining from the 9,100-yen level to the 8,500-yen level. The yen against the U.S. dollar is moving within the range from the 77-yen level to the 79-yen level.