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Monthly Economic ReportExecutive Summary( Feb 2013 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is bottoming out, while weakness can be seen in some areas.

  • Exports are moderately decreasing recently. Industrial production is bottoming out.
  • Corporate profits show signs of bottoming out, mainly among large firms. Business investment shows weakness.
  • Firms' judgment on current business conditions shows movements of improvement.
  • The improvement in the employment situation appears to be pausing while some severe aspects still remain.
  • Private consumption holds firm.
  • 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 in some areas but the recovery is expected to resume gradually supported by the improvement of confidence, the improvement of export conditions and the effect of the policy package and monetary policy. However, slowing down of overseas economies is still downside risk of the Japanese economy. Also, attention should be paid to the employment and income situations over the future.

(Policy stance)

To revitalize the Japanese economy, the Government will make its utmost efforts to move the economy onto the "virtuous cycle of growth and creating wealth," and to regain the "strong economy", in addition to making go forward the reconstruction from the Great Earthquake. In order to correct excessive appreciation of yen and overcome deflation early, the Government will eliminate deflationary expectations and avoid further deterioration of economy with prompt and flexible economic and fiscal policy management. In particular, the market has recently observed situations such as rising share prices, expecting future economic recovery. The Government will ensure that these signs of improvement lead to realizing economic recovery via appropriate policy management.

Accordingly, the Government approved the "Fiscal 2013 Economic Outlook and Basic Stance for Economic and Fiscal Management" on January 28th and decided the FY2013 budget on January 29th. In addition, the Diet passed the FY2012 supplementary budget on February 26th.

The Government expects the Bank of Japan to pursue aggressive monetary easing in order to achieve the price stability target of two percent at the earliest possible time.

Detailed explanations

1. Demand trends such as consumption and investment

Real GDP (gross domestic product) in the Octobe-?December quarter of 2012 decreased by 0.1% on a quarterly basis (at an annual rate of 0.4%), posting negative growth for the third consecutive quarter. Nominal GDP decreased by 0.4% on a quarterly basis, posting negative growth for the third consecutive quarter.

Private consumption holds firm.

   Private consumption holds firm. Consumer confidence is picking up. Real income of employees has been in a weak tone recently, reflecting a decline in year-end bonuses. 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 December in comparison to November, while it also increased in terms of the three-month moving average.

  As for short-term prospects, private consumption is expected to show steady movement as confidence is improving. 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 leveled off.

   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 picking up recently.

   As for short-term prospects, business investment is expected to pick up as confidence is improving along with the steady overseas economies, reconstruction demand, etc.

Housing construction has shown a steady undertone.

   Housing construction has shown a steady undertone. Construction of owned houses, houses for rent and houses for sale has shown a steady undertone.

   The total number of sales of condominiums in the Tokyo metropolitan area has been almost flat.

   As for short-term prospects, housing construction is expected to show steady movement, due to improvement of confidence with continuously lasting reconstruction demand. However, the supply-demand situations of construction workers should be closely monitored.

Public investment has shown a steady undertone.

   Public investment has shown a steady undertone.

   The amount of contracted public works in January 2013 and the amount of public works orders received in December 2012 were higher than in the previous year.

   As for short-term prospects, steady movement is expected to be intensified gradually, partly due to a boosting effect by the supplementary budget.

   In the general account of the budget plan for FY 2013, the government plans to increase expenses relate to public investment by 15.6% from the previous fiscal year. Out of local public investment expenses under the fiscal plans of local governments, those for projects undertaken by local governments on their own funding have been slashed by about 3.1% from the previous fiscal year. In addition, expenses for urgent disaster prevention and mitigation projects are allocated.

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 both the U.S. and the EU are starting to level off. As for short-term prospects, exports are expected to be leveling off, reflecting the steady overseas economies and the trend of exchange rate depreciation of the yen. However, it should be noted that there are risks of downturn in overseas economies.

   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 December increased, as export values have been flat and import values have increased. The deficit in the services trade has been flat.


2. Corporate activities and employment

Industrial production is bottoming out.

   Industrial production is bottoming out. By type of industry, transport machinery is showing signs of picking up. General machinery is in a weak tone. Electronic components and devices are showing a steady undertone.

   As for short-term prospects, production is expected to pick up, reflecting the improvement of export conditions and steady domestic demand.

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

Corporate profits show signs of bottoming out, mainly among large firms. Firms' judgment on current business conditions shows signs of improvement. The number of corporate bankruptcies has been almost flat.

  According to the BOJ Tankan (December survey), corporate profits show that 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 settlement during the October-December quarter of 2012 for the listed companies shows that profits have increased both for manufacturers and non-manufacturers.

   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. On the other hand, according to the Economy Watchers Survey (January survey), both current and prospective business conditions improved for the third consecutive month.

   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 has increased by 0.1 percentage points from the previous month to 4.2% in December. The total unemployment rate of those aged 15 to 24 was 7.1%, an increase of 0.2 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. Although the number of employees had been showing movements toward picking up recently, it declined in December.

   The number of new job offers has shown signs of picking up recently. The effective ratio of job offers to applicants has been moving horizontally recently. Overtime hours worked in the manufacturing industry have leveled off.

   As for the movement of wages, while contractual cash earnings have been showing steady movement, the total amount of cash earnings has been in a weak tone along with a decrease in special cash earnings, including bonuses.

   As for short-term prospects, the employment situation is expected to pick up, though some severe aspects still remain. In addition, attention should be given to continuing developments of employment adjustment in the manufacturing industry.


3. Prices and the financial market

Domestic corporate goods prices have been rising at a moderate pace recently. Consumer prices have declined moderately.

   Domestic corporate goods prices have been rising 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 declined moderately.

   As for short-term prospects, consumer prices (core core) are expected to remain on a moderate 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 10,600-yen level to the 11,600-yen level. The yen against the U.S. dollar is moving in the direction of depreciation from the 88-yen level to the 93-yen level.

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