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Monthly Economic ReportExecutive Summary( May 2013 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is picking up slowly.

  • Exports show signs of picking up. Industrial production is picking up slowly.
  • Corporate profits show movements of improvement, mainly among large firms. Business investment is starting to level off.
  • Firms' judgment on current business conditions shows movements of improvement.
  • The employment situation shows signs of improvement recently, although some severe aspects still 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 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 restore a robust 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 the economic recovery. The Government will ensure that these signs of improvement lead to realizing economic recovery via appropriate policy management.

Accordingly, the Government firmly manages progress of the Emergency Economic Measures including the FY2012 supplementary budget for its prompt and steady implementation, and steadily executes the FY2013 budget approved by the Diet.

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

   Real GDP (gross domestic product) in the January - March quarter of 2013 increased by 0.9% on a quarterly basis (at an annual rate of 3.5%), posting positive growth for the second consecutive quarter. Nominal GDP increased by 0.4% on a quarterly basis, posting positive growth for the second consecutive quarter.

Private consumption is picking up.

   Private consumption is picking up. One of the factors behind this is that although real income of employees remains broadly flat, 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.), decreased in March in comparison to February, while it increased in terms of the three-month moving average.

  As for short-term prospects, private consumption is expected to continue to be on a pickup trend as confidence is improving. However, movements of employment and income should be closely monitored.

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 for the first time in four quarters from the October-December quarter of 2011. In the October - December quarter of 2012, business investment decreased for manufacturers and increased for non-manufacturers. 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 for large manufacturers and to decrease for large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, has been in a weak tone recently.

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

   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 April 2013 and the amount of public works orders received in March 2013 were higher than in the previous year.

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

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

   Exports show signs of picking up. By region, exports to Asia have leveled off. Exports to the U.S. show signs of picking up. Exports to the EU are starting to level 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. 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 leveled off. 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 March decreased, as export values have increased and import values have decreased. The deficit in the services trade has decreased.


2. Corporate activities and employment

Industrial production is picking up slowly.

   Industrial production is picking up slowly. By type of industry, transport equipment is picking up. General machinery has shown a steady undertone. Electronic parts and devices are in a weak tone.

   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 an increase in April and a decrease in May.

Corporate profits show movementsof improvement, mainly among large firms. Firms' judgment on current business conditions shows signs of improvement. The number of corporate bankruptcies has been moderately decreasing recently.

  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 that current profits are expected to increase for the second consecutive year. The settlement during the January-March quarter of 2013 for the listed companies shows that profits have increased both for manufacturers and non-manufacturers.

   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 Economy Watchers Survey (April survey), current business conditions improved for the sixth consecutive month, and prospective business conditions improved for the first time in two months.

   The number of corporate bankruptcies has been moderately decreasing recently.

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

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

   The total unemployment rate decreased by 0.2 percentage points from the previous month to 4.1% in March. The total unemployment rate of those aged 15 to 24 was 6.5%, a decrease of 0.1 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons decreased. The number of employees has been moving horizontally.

   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 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.

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


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 April.

   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, the Nikkei Stock Average rose from the 13,200-yen level to the 15,000-yen level. The yen against the U.S. dollar is moving in the direction of depreciation from the 97-yen level to the 102-yen level.

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