Cabinet Office, Government of Japan

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Monthly Economic ReportExecutive Summary( Sep 2012 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The economic recovery appears to be pausing due to deceleration of the world economy.

  • Both industrial production and exports are in a weak tone.
  • 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 a small improvement as a whole, mainly driven by large firms.
  • 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, which would pause for the time being, are expected to resume with the improvement of the overseas economy while reconstruction demand lasts continuously. However, further slowing down of overseas economies and sharp fluctuations in the financial and capital markets under a high degree of uncertainty about the prospects of the Eurozone debt crisis 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.

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 decided "Medium-term Fiscal Framework (FY2013-FY2015)" on August 31st.

As the Diet has not passed the bill on special provisions concerning issuance of government bonds, the Government decided "the Execution of the General Account Budget from September onwards" on September 7th.

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.

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.), decreased in July in comparison to June, while it also decreased in terms of the three-month moving average.

  As for short-term prospects, although employment and income environments remain stable, private consumption is expected to remain flat for the time being while there are some concerns about the prospect of automobile sales.

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

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

   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, 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 August 2012 and the amount of public works orders received in July 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 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 are in a weak tone. 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 show steady movement.

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


2. Corporate activities and employment

Industrial production is in a weak tone.

   Industrial production is in a weak tone, reflecting weak exports, etc.

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

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

Corporate profits, which have been picking up, show signs of leveling off recently. Firms' judgment on current business conditions shows a small improvement mainly driven by large firms. 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%, and profits in the non-manufacturing industry also increased by 16.0%. 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 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 stood at 4.3% in July, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 8.2%, an increase of 0.8 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 is moving horizontally recently.

   The effective ratio of job offers to applicants has been rising because of an increasing trend in the number of new job offers, etc. Overtime hours worked in the manufacturing industry have been in a weak tone recently.

   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 along with a decrease in special cash earnings.

   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 a weak tone in production.


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 moving within the range from the 8,600-yen level to the 9,000-yen level. The yen against the U.S. dollar is mostly staying at the 78-yen level.

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