Monthly Economic ReportExecutive Summary( Oct 2013 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is on the way to recovery at a moderate pace.

  • Exports are almost flat. Industrial production is increasing at a moderate pace.
  • Corporate profits are improving, mainly among large firms. Business investment shows movements of picking up, mainly among non-manufacturing industries.
  • Firms' judgment on current business conditions is further improving.
  • The employment situation is improving.
  • Private consumption is on a trend of picking up.
  • Recent price developments indicate that the deflation is ending

Concerning short-term prospects, the recovery is expected to take hold as household income and business investment continue to be on upward trends, 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 implements economic and fiscal policies based on the "Basic Policies for Economic and Fiscal Management and Reform" , and accelerates and also strengthens implementations of the "Japan Revitalization Strategy" .

And, for realizing a positive cycle of the economy, the Government established the "Government - Labor - Management Meeting for Realizing a Positive Cycle of the Economy" on September 20th. On October 1st, the Government decided the "Raising the National and Local Consumption Tax Rates and Associated Responses" .

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 on a trend of picking up.

  Private consumption is on a trend of picking up. One of the factors behind this is that real income of employees and consumer confidence both hold 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 by 0.1% in August in comparison to July, while it decreased in terms of the three-month moving average.

   Concerning short-term prospects, the recovery is expected to continue on a pickup trend, supported by the improvement of the employment and income situations. In addition, some boost may be expected to come from a last-minute rise in demand before a consumption tax increase.

Business investment shows movements of picking up, mainly among non-manufacturing industries.

  Business investment shows movements of picking up, mainly among non-manufacturing industries. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment increased in the April-June quarter of 2013 by 2.9% from the previous quarter, the third consecutive quarter of increase. By industry, business investment decreased for manufacturers by 0.6% from the previous quarter, and increased for non-manufacturers by 4.7% from the previous quarter. Capital Goods Shipments, supply-side statistics, have been showing steady movement.

  According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (September survey) by the Bank of Japan, planned business investment in fiscal year 2013 is expected to increase for the third consecutive year for manufacturers, and that for non-manufacturers is expected to increase for the second consecutive year, thus, for all industries, investment is expected to increase for the second consecutive year. 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, are picking up.

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

Housing construction is increasing.

  Housing construction is increasing. Construction of owned houses, houses for rent and houses for sale is increasing.

  The total number of sales of condominiums in the Tokyo metropolitan area is increasing.

  As for short-term prospects, housing construction is expected to continue to be on an upward trend for the time being, supported by the improvement of the employment and income situations, and a last-minute rise in demand before a consumption tax increase. However, the supply-demand situations of construction workers should be closely monitored.

Public investment shows steady performance.

  Public investment has shown steady performance. The amount of contracted public works in September 2013 and the amount of public works orders received in August 2013 and the turnover of public construction in August 2013 increased by 29.4%, 14.0% and 24.3% respectively from the previous year.

  As for short-term prospects, public investment is expected to show steady movement due to the execution of related budgets.

Exports are almost flat. Imports show movements of picking up recently. The deficits of the balance of goods and services have been flat.

  Exports are almost flat. By region, exports to Asia are almost flat. Exports to the U.S. are flat recently. Exports to EU show movements of picking up. As for short-term prospects, exports are expected to pick up again, 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 a downturn in overseas economies.

  Imports show movements of picking up recently. By region, imports from Asia and the U.S. show movements of picking up. Imports from EU show movements of picking up recently. As for short-term prospects, imports are expected to show steady movement.

  The deficits of the balance of goods and services have been flat.

  The deficit in the balance of trade in August decreased, as export values increased and import values were flat. The deficit in services increased.


2. Corporate activities and employment

Industrial production is increasing at a moderate pace.

  Industrial production is increasing at a moderate pace. By type of industry, general-purpose, production and business oriented machinery is picking up. Transport equipment, electronic parts and devices have shown a steady undertone.

  As for short-term prospects, production is expected to increase at a moderate pace, reflecting the improvement of export conditions and domestic demand being in good condition.

  Also, the Survey of Production Forecasts expects an increase of 5.2% in September and an increase of 2.5% in October from the previous month.

Corporate profits are improving, mainly among large firms. Firms’ judgment on current business conditions is further improving. The number of corporate bankruptcies is almost flat.

  Corporate profits are improving, mainly among large firms. According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the April-June quarter of 2013 increased by 24.0% from the previous year, and by 10.5% from the previous quarter. By size of company, large and medium-sized companies saw an increase of 40.2% in corporate profits, while smaller companies saw a decline of 12.5%. According to the BOJ Tankan (September survey), 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.

  Firms’ judgment on current business conditions is further improving. The Tankan (September survey) revealed that firms’ judgment on current business conditions improved by 4 points for all enterprises in all industries. By industry, large manufacturers’ judgment on current business conditions improved by 8 points, that for large non-manufacturers improved by 2 points, that for small manufacturers improved by 5 points, and that for small non-manufacturers improved by 3 points. According to the corporate activity-related DI of the Economy Watchers Survey (September survey), both current and prospective business conditions improved.

  The number of corporate bankruptcies is almost flat.

The employment situation is improving.

   The employment situation is improving. The total unemployment rate, though still being on a downward trend, increased by 0.3 percentage points from the previous month to 4.1% in August. The total unemployment rate of those aged 15 to 24 was 7.0%, an increase of 1.0 percentage points from the previous month. The labor force and the number of unemployed persons increased, and the number of employed persons decreased.

  The number of employees is increasing. 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 on an upward trend.

  As for the movement of wages, contractual cash earnings are almost flat. The total amount of cash earnings shows steady movement.

  According to the BOJ Tankan (September survey), firms' judgment on current employment conditions showed that the excessiveness of the number of employees decreased in the manufacturing industry, and that labor shortage emerged in the whole industry.

  As for short-term prospects, the employment situation is expected to improve.


3. Prices and the financial market

Domestic corporate goods prices are rising at a moderate pace. Consumer prices are rising, due mainly to increasing energy prices, and those excluding energy prices also show a steady undertone as a trend.

   Domestic corporate goods prices are 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"), show a steady undertone.

  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 September.

  As for short-term prospects, consumer prices (core core) are expected to hold firm for the time being.

  Taken together, these recent movements show that the deflation is ending.

As for stock prices, after rising from the 14,300-yen level to the 14,700-yen level, the Nikkei Stock Average declined to the 13,800-yen level, and thereafter rose again to the 14,700- yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 99-yen level to the 97-yen level, and thereafter moved in the direction of depreciation to the 98-yen level.