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Monthly Economic ReportExecutive Summary( Jun 2013 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is picking up steadily.

  • Exports show movements of picking up. Industrial production is picking up.
  • Corporate profits are improving, mainly among manufacturers. Business investment is starting to level off.
  • Firms’ judgment on current business conditions shows movements of improvement.
  • The employment situation is improving, although some severe aspects remain.
  • Private consumption is picking up.
  • Recent price developments indicate that the Japanese economy is in a mild deflationary phase, while signs of change can be seen in some areas recently.

Concerning short-term prospects, the recovery is expected to resume as the improvement of the corporate profits leads to increases in household income and business investment, while exports pick up and the effects of the policies develop. However, slowing down of overseas economies is still downside risk of the Japanese economy.

(Policy stance)

The Government will make its utmost efforts to overcome deflation early and achieve the revitalization of the Japanese economy, in addition to accelerate the reconstruction from the Great Earthquake. To this end, the Government will immediately decide the "Basic Policies (provisional title)" as a basic strategy toward "a decade of revitalization" and the "Growth Strategy (provisional title)".

The Government expects the Bank of Japan to achieve the price stability target of two percent at the earliest possible time.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption is picking up.

   Private consumption is picking up. One of the factors behind this is that with steady movement of real income of employees, consumer confidence is improving. 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 April in comparison to March, while it also increased in terms of the three-month moving average.

  Concerning short-term prospects, the recovery is expected to continue to be on a picking trend, supported by the improvement of the employment and income situations.

Business investment is starting to level off.

   Business investment is starting to level off. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment increased in the October-December quarter of 2012, and decreased in the January-March quarter of 2013. Capital Goods Shipments, supply-side statistics, have been showing steady movement.

   According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (March survey) by the Bank of Japan, planned business investment in the fiscal year 2013 is expected to decrease for the first time in three years for manufacturers, and that for non-manufacturers is expected to decrease for the first time in two years, thus that for all industries is expected to decrease for the first time in two years. According to the Business Outlook Survey by the Ministry of Finance and the Cabinet Office, planned business investment in fiscal year 2013 is expected to increase both for large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, increased substantially in March, but has remained almost flat.

   As for short-term prospects, business investment is expected to pick up, reflecting the improvement of corporate profits and confidence, etc.

Housing construction is picking up.

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

   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 continue to be on a pickup trend supported by continuously lasting reconstruction demand and the improvement of the employment and income situations. 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 May 2013 and the amount of public works orders received in April 2013were higher than in the previous year.

   As for short-term prospects, a strong trend is expected due to the execution of related budgets.

Exports show movements of picking up. Imports have been flat. The deficits of the balance of goods and services have been on an upward trend.

   Exports show movements of picking up. By region, exports to Asia have been flat. Exports to the U.S. are showing movements of picking up. Exports to the EU have leveled off. As for short-term prospects, exports are expected to pick up, reflecting the steady overseas economies and the trend of exchange rate depreciation of the yen so far. 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 in a weak tone. Imports from the EU have been flat. As for short-term prospects, imports are expected to pick up gradually.

   The deficits of the balance of goods and services have been on an upward trend.

   The deficit in the balance of trade in April was flat, as both export and import values decreased. The deficit in the services trade increased.


2. Corporate activities and employment

Industrial production is picking up.

   Industrial production is picking up. By type of industry, transport equipment is picking up. General machinery and electronic parts and devices have shown a steady undertone.

   As for short-term prospects, production is expected to be on a pickup trend, reflecting the improvement of export conditions and the upward movement of domestic demand.

   Also, the Survey of Production Forecasts expects flatin May and a decrease in June.

Corporate profits are improving, mainly among manufacturers. Firms' judgment on current business conditions shows signs of improvement. The number of corporate bankruptcies has been almost flat.

  According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the January-March quarter of 2013 increased by 6.0% in comparison with the previous year. Seasonally adjusted changes from the previous quarter also showed an increase of 4.9%, thus, they are improving, mainly among manufacturers. By type of industry, profits in the manufacturing industry increased by 28.3% in comparison with the previous year, and profits in the non-manufacturing industry decreased by 3.2%. According to the BOJ Tankan (March survey), corporate profits show that sales in fiscal year 2013 are expected to increase for the fourth consecutive year, and current profits are expected to increase for the second consecutive year.

   The Tankan (March survey) also reveals that firms' judgment on current business conditions shows an improvement by 1 point for all enterprises in all industries. By industry, large manufacturers' judgment on current business conditions improved by 4 points, that for large non-manufacturers improved by 2 points, that for small manufacturers decreased by 1 point, and that for small non-manufacturers improved by 3 points. According to the corporate activity-related DI of the Economy Watchers Survey (May survey), current business conditions improved for the seventh consecutive month, and prospective business conditions decreased for the first time in two months.

   The number of corporate bankruptcies has been almost flat.

The employment situation is improving, although some severe aspects remain.

   The employment situation is improving, although some severe aspects remain.

   The total unemployment rate stood at 4.1% in April, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 8.1%, an increase of 1.6 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons increased. The number of employees has been showing movements of picking up 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 increasing.

   As for the movement of wages, contractual cash earnings have been showing movements of picking up recently. The total amount of cash earnings has been showing steady movement recently.

   As for short-term prospects, the employment situation is expected to improve, though some severe aspects remain.


3. Prices and the financial market

Domestic corporate goods prices have been rising at a moderate pace. Consumer prices are declining at a slower tempo recently.

   Domestic corporate goods prices have been rising at a moderate pace.

   Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components" (referred to as "core core"), are declining at a slower tempo recently.

   According to the Monthly Consumer Confidence Survey (general households), the ratio of households which forecast a rise in prices increased from the previous month in May.

   As for short-term prospects, consumer prices (core core) are expected to be leveling off gradually.

   Taken together, these recent movements show that the Japanese economy is still in a mild deflationary phase, while signs of change can be seen in some areas recently.

As for stock prices, after declining from the 15,500-yen level to the 12,800-yen level, the Nikkei Stock Average rose to the 13,400-yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 102-yen level to the 96-yen level, and thereafter, it moved in the direction of depreciation to the 98-yen level.

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