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Monthly Economic ReportExecutive Summary( Apr 2014 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is on a moderate recovery trend, while some weak movements are seen lately due to a reaction after a last-minute rise in demand before a consumption tax increase.

  • Private consumption shows weakness lately due to a reaction after a last-minute rise in demand before a consumption tax increase.
  • Business investment is picking up.
  • Exports are flat.
  • Industrial production is almost flat with a reaction after a last-minute rise in demand before a consumption tax increase.
  • Corporate profits are improving. Firms' judgment on current business conditions is broadly improving. However, firms are cautious about the immediate future.
  • The employment situation is improving steadily.
  • Consumer prices are rising moderately.

Concerning short-term prospects, although weakness remains for the time being due to the reaction after a last-minute rise in demand, the economy is expected to recover as the effect gradually lessens, while the effects of the policies support. 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". Furthermore, for realizing virtuous cycles of the economy, the Government steadily implements the "Economic Policy Package"including "Economic Measures for Realization of Virtuous Cycles" , and works for early implementation of the FY2014 budget.
  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 shows weakness recently due to a reaction after a last-minute rise in demand before a consumption tax increase.

  Private consumption shows weakness recently. The factors behind this include that although real income of employees is almost flat, consumer confidence shows weakness, and that a reaction after a last-minute rise in demand before a consumption tax increase is arising.

  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 by 1.0% in February from the previous month, while it also decreased in terms of the three-month moving average.

  As for situations after the beginning of April, based on results of interviews and other informations, new car sales, home appliance sales, sales at department stores, and other sales show weakness due to a reaction after a last-minute rise in demand before a consumption tax increase. Outlays for Travel and eating-out show a steady undertone.

  Concerning short-term prospects, although weakness would remain for the time being due to a reaction to a last-minute rise in demand before a consumption tax increase, consumption is expected to pick up gradually, supported by the improvement of the employment and income situations.

Business investment is picking up.

   Business investment is picking up. The Quarterly Financial Statements Statistics of Corporations by Industry (October?December quarter survey), demand-side statistics, show that business investment decreased in the October?December quarter of 2013 by 0.3% from the previous quarter. By industry, business investment increased for manufacturers by 0.0% from the previous quarter, the first increase after six consecutive quarters of decline since the April?June quarter of 2012. Meanwhile, business investment decreased for non-manufacturers by 0.4% from the previous quarter, though it increased by 5.1% on a year-on-year basis. Capital Goods Shipments, supply-side statistics, increased.

  According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (March survey), planned business investment for manufacturers in fiscal year 2014 is expected to increase for four consecutive years, and that for non-manufacturers and all industries is expected to decrease for the first time in three years. According to the Business Outlook Survey (January?March quarter survey), planned business investment in fiscal year 2014 is expected to increase for large manufacturers, and decrease for large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, are almost flat.

  As for short-term prospects, business investment is expected to be on a pickup trend, mainly reflecting the improvement of corporate profits to date.

Housing construction is decreasing due to a reaction after a last-minute rise in demand before a consumption tax increase.

  Housing construction is decreasing due to a reaction after a last-minute rise in demand before a consumption tax increase. Construction of owned houses and houses for sale is decreasing. Construction of houses for rent is growing at a slower pace. The total number of sales of condominiums in the Tokyo metropolitan area shows weakness.

  As for short-term prospects, housing construction is expected to continue the downward trend for the time being due to a reaction after a last-minute rise in demand before a consumption tax increase. In addition, the supply-demand situations of construction workers should be closely monitored continuously.

Public investment holds firm.

  Public investment holds firm. The amount of contracted public works in March 2014 and the amount of public works orders received in February 2014 increased by 18.1% and 3.5% respectively from the previous year. The amount of public construction completed in January 2014 increased by 15.7% from the previous year, despite a decline of 1.0% from the previous month.

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

Exports are flat. Imports are growing at a slower pace recently. The deficits of the balance of goods and services are on an upward trend.

  Exports are flat. By region, exports to Asia and the U.S are almost flat. Exports to EU are flat. Exports to other regions are flat recently. As for short-term prospects, exports are expected to pick up gradually, mainly reflecting the steady overseas economies. However, it should be noted that there are risks of a downturn in overseas economies.

  Imports are growing at a slower pace recently. By region, imports from Asia are growing at a slower pace recently. Imports from the U.S. show movements of picking up. Imports from EU are picking up. As for short-term prospects, although a reaction after a last-minute rise in demand before a consumption tax increase would remain for the time being, imports are expected to be on a trend of modest increase.

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

  The deficit in the balance of trade in February decreased, as import values decreased and export values slightly decreased. The deficit in services decreased.


2. Corporate activities and employment

Industrial production is almost flat with a reaction after a last-minute rise in demand before a consumption tax increase.

  Industrial production is almost flat with a reaction after a last-minute rise in demand before a consumption tax increase. By industry, transport equipment is almost flat with a reaction after a last-minute rise in demand before a consumption tax increase. General-purpose, production and business oriented machinery are increasing. Electronic parts and devices are flat.

  As for short-term prospects, although a reaction after a last-minute rise in demand before a consumption tax increase would remain for the time being, production is expected to pick up gradually.

  Also, the Survey of Production Forecasts expects an increase of 0.9% from the previous month in March, and a decrease of 0.6% in April.

Corporate profits are improving. Firms’ judgment on current business conditions is broadly improving. However, firms are cautious about the immediate future. The number of corporate bankruptcies is decreasing at a moderate pace.

  Corporate profits are improving. According to the BOJ Tankan (March survey), sales in fiscal year 2013 are expected to increase for four consecutive years for all enterprises in all industries, and current profits are expected to increase for two consecutive years. Sales in fiscal year 2014 are expected to increase, while current profits are expected to decrease.

  Firms’ judgment on current business conditions is broadly improving. However, firms are cautious about the immediate future. The Tankan (March survey) revealed that firms’ judgment on current business conditions improved by 4 points for all enterprises in all industries, but that on future business conditions which indicates the business condition as of June, deteriorated by 11 points. Various surveys showed that current business conditions improved in March. According to the corporate activity-related DI of the Economy Watchers Survey (March survey), current business conditions rose, with a fall in prospective business conditions mainly due to the expected effects of a possible decline in demand after a consumption tax increase as a reaction to a last-minute rise.

  The number of corporate bankruptcies is decreasing at a moderate pace.

The employment situation is improving steadily.

  The employment situation is improving steadily. The total unemployment rate has decreased by 0.1 percentage points from the previous month to 3.6% in February. The total unemployment rate of those aged 15 to 24 was 5.8%, a decrease of 0.7 percentage points from the previous month. The labor force and the number of employed persons increased, while the number of unemployed persons decreased.

  The number of employees is on an upward trend. The effective ratio of job offers to applicants is increasing because of an upward trend in the number of new job offers. Overtime hours worked in the manufacturing industry are on an upward trend.

  As for the movement of wages, contractual cash earnings show steady movement. The total amount of cash earnings has been showing movements of picking up recently. The movement of raising pay scale is prevailing, reflecting shunto.

  According to the BOJ Tankan (March Survey), firms’ judgment on current employment conditions turned to labor shortage in manufacturers, and showed that labor shortage increased in whole industry. On the other hand, firms’ judgment on future employment conditions which indicates the employment conditions as of June, turned to labor excessiveness in manufacturers, and showed that labor shortage decreased in whole industry.

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


3. Prices and the financial market

Domestic corporate goods prices are flat. Consumer prices are rising moderately.

  Domestic corporate goods prices are flat.

   Consumer prices, in terms of general, excluding fresh food, petroleum products and other specific components (referred to as "core core"), are rising moderately.

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

  As for short-term prospects, consumer prices (core core) are expected to be on a moderate upward trend for the time being on a basis excluding direct effects of the consumption tax increase.

As for stock prices, after rising from the 14,400-yen level to the 15,000-yen level, the Nikkei Stock Average declined to the 13,900-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 101-yen level to the 103-yen level, and thereafter moved in the direction of appreciation to the 101-yen level.

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