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Monthly Economic ReportExecutive Summary( Jan 2013 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

While the Japanese economy shows weakness recently, signs of bottoming out can be seen in some areas.

  • Exports are moderately decreasing recently. Industrial production is showing signs of bottoming out.
  • Corporate profits are in a weak tone, mainly among manufacturers. Business investment shows weakness.
  • While firms' judgment on current business conditions shows cautiousness, signs of improvement can be seen in some areas .
  • The improvement in the employment situation appears to be pausing while some severe aspects still remain.
  • Private consumption holds firm recently.
  • 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 but the recovery is expected to resume while supported by the improvement of export conditions and the effect of the policy package. 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, and the adverse effects of deflation on the economy.

(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 correction of excessive yen appreciation and start of 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 decided "Emergency Economic Measures for The Revitalization of the Japanese Economy" on January 11th and the FY2012 supplementary budget on January 15th.

The Government and the Bank of Japan released a joint statement of their policy coordination on overcoming deflation and achieving sustainable economic growth, and the Bank decided to introduce the "price stability target" at 2 percent on January 22nd. In addition, the Bank of Japan decided to introduce "open-end asset purchasing method" under the Asset Purchase Program on the same day.

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

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption holds firm recently.

   Private consumption holds firm recently. Consumer confidence has been in a weak tone recently. 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 November in comparison to October, while it also increased in terms of the three-month moving average.

  As for short-term prospects, private consumption is expected to remain flat. 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 decreased.

   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 almost flat.

   As for short-term prospects, although some weak aspects presently remain, business investment is expected to be supported by 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 and houses for sale has been almost flat, while construction of houses for rent 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, partly due to reconstruction demand. However, the supply-demand situations of construction workers should be closely monitored for the time being.

Public investment has shown a steady undertone.

   Public investment has shown a steady undertone.

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

   As for short-term prospects, steady movement is expected due to the execution of related budgets. In addition, in the FY2012 supplementary budget plan approved by the Government on January 15, 2013, the Government plans to take budgetary measures including "acceleration of the reconstruction from the Great East Japan Earthquake" and "prior disaster prevention and mitigation, etc."

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 the U.S. have been moderately decreasing recently. Exports to the EU have been showing signs of leveling off recently. 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 November increased, as export values have slightly increased and import values have increased. The deficit in the services trade has increased.


2. Corporate activities and employment

Industrial production is showing signs of bottoming out.

   Industrial production is showing signs of bottoming out.

   As for short-term prospects, production is expected to level off, reflecting the completion of reduction of automobile production, steady overseas economies, etc.

   On the other hand, the Survey of Production Forecasts expects an increase in both December and January.

Corporate profits are in a weak tone, mainly among manufacturers. While Firms' judgment on current business conditions shows cautiousness, signs of improvement can be seen in some areas. The number of corporate bankruptcies has been almost flat.

  According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the July-September quarter of 2012 increased by 6.3% in comparison with the previous year; however, seasonally adjusted changes from the previous quarter showed a decrease of 1.7%, thus, they are in a weak tone, mainly among manufacturers, reflecting a decrease in sales. By type of industry, profits in the manufacturing industry decreased by 2.1% in comparison with the previous year, and profits in the non-manufacturing industry increased by 10.2%. According to the BOJ Tankan (December survey), 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 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. According to the Economy Watchers Survey (December survey), both current and prospective business conditions improved for the second 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 decreased by 0.1 percentage points from the previous month to 4.1% in November. The total unemployment rate of those aged 15 to 24 was 6.9%, a decrease of 0.8 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 showing movements toward picking up recently.

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

   As for the movement of wages, while contractual cash earnings have been showing steady movement, the total amount of cash earnings has been moving horizontally.

   As for short-term prospects, the improvement in the employment situation is expected to continue pausing, reflecting still-lingering severity. 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 10,000-yen level to the 10,900-yen level. The yen against the U.S. dollar is moving in the direction of depreciation from the 84-yen level to the 90-yen level.

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