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Monthly Economic ReportExecutive Summary( August 2014 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is on a moderate recovery trend and a reaction after a last-minute rise in demand before a consumption tax increase is easing.

  • Private consumption shows movements of picking up, while some weakness remains.
  • Business investment shows some weak movements recently, while it is on the increase.
  • Exports are flat.
  • Industrial production is in a weak tone with a reaction after a last-minute rise in demand before a consumption tax increase.
  • Corporate profits improvement appears to be pausing. Firms' judgment on current business conditions is cautious, while it shows signs of improvement.
  • The employment situation is improving steadily.
  • Consumer prices are rising moderately.

Concerning short-term prospects, although some 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, attention should be given to the downside risks of the Japanese economy such as lengthening of the reaction after a last-minute rise in demand and slowing down of overseas economies.

(Policy stance)

  The Government will make its utmost efforts to ensure the economy overcomes deflation and realize sustainable growth, 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 the Economic and Fiscal Management and Reform 2014", and steadily carries out the "Japan Revitalization Strategy Revised in 2014". 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

   Real GDP (gross domestic product) in the April-June quarter of 2014 decreased by 1.7% on a quarterly basis (at an annual rate of 6.8%), posting negative growth for the first time in two quarters. Nominal GDP decreased by 0.1% on a quarterly basis, posting negative growth for the first time in seven quarters.

Private consumption shows movements of picking up, while some weakness remains.

  Private consumption shows movements of picking up, while some weakness remains. The factors behind this include that although real income of employees shows weakness, a reaction after a last-minute rise in demand before a consumption tax increase is easing. In addition, consumer confidence is also picking up under such circumstances.

  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 0.6% in June from the previous month.

  Concerning short-term prospects, consumption is expected to pick up supported by the improvement of the employment and income situations. However, attention should be given to concerns that a reaction after a last-minute rise in demand will become prolonged because movements of picking up from a reaction still vary among items.

Business investment shows some weak movements recently, but it is on the increase.

  Business investment shows some weak movements recently, but it is on the increase. The Quarterly Financial Statements Statistics of Corporations by Industry (January-March quarter survey), demand-side statistics, show that business investment increased in the January-March quarter of 2014 by 3.1% from the previous quarter. By industry, business investment increased for manufacturers by 5.5% from the previous quarter, and for non-manufacturers by 1.8%. Capital Goods Shipments, supply-side statistics, show some weak movements recently.

  According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (June survey), planned business investment for all industries in fiscal year 2014 is expected to increase for three consecutive years, that for manufacturers is expected to increase for four consecutive years, and that for non-manufacturers is expected to decrease for the first time in three years. According to the Business Outlook Survey (April-June quarter survey), planned business investment in fiscal year 2014 is expected to increase for both large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, show some weak movements recently.

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

Housing construction is decreasing at a slower tempo recently.

  Housing construction is decreasing at a slower tempo recently. Construction of owned houses is decreasing at a slower tempo. Construction of houses for rent and houses for sale is flat. The total number of sales of condominiums in the Tokyo metropolitan area is decreasing at a slower tempo.

  As for short-term prospects, housing construction is expected to be leveling off gradually although a reaction after a last-minute rise in demand before a consumption tax increase would remain. However, movements of construction costs and the supply-demand situations of construction workers should be closely monitored continuously.

Public investment shows steady performance.

  Public investment shows steady performance. The amount of contracted public works in July 2014 and the amount of public works orders received in June 2014 increased by 3.5% and 10.6% respectively from the previous year. The amount of public construction completed in June 2014 increased by 9.4% from the previous year, and an increase of 2.2% from the previous month.

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

Exports are flat. Imports are in a weak tone recently. The deficits of the balance of goods and services are on a decreasing trend.

  Exports are flat. By region, exports to Asia, the U.S., and other regions are flat. Exports to EU show signs of picking up. 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 in a weak tone recently. By region, imports from Asia are flat. Imports from the U.S. and EU are in a weak tone recently. As for short-term prospects, imports are expected to pick up gradually.

  The deficits of the balance of goods and services are on a decreasing trend.

  The deficit in the balance of trade in June increased, as export values increased and import values increased substantially. The deficit in services increased.


2. Corporate activities and employment

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

  Industrial production is in a weak tone with a reaction after a last-minute rise in demand before a consumption tax increase. The Indices of Industrial Production decreased by 3.4% from the previous month in June. Also, the Survey of Production Forecast in Manufacturing expects an increase of 2.5% from the previous month in July, and an increase of 1.1% in August.

  By industry, transport equipment is in a weak tone with a reaction after a last-minute rise in demand before a consumption tax increase. General-purpose, production and business oriented machinery and 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.

Corporate profits improvement appears to be pausing. Firms’ judgment on current business conditions shows cautiousness, while signs of improvement can be seen. The number of corporate bankruptcies is almost flat.

  Corporate profits improvement appears to be pausing. According to the BOJ Tankan (June survey), sales in fiscal year 2014 are expected to increase, while current profits are expected to decrease. During the April-June quarter of 2014, the increasing rate of the current profits of the listed companies from the previous year fell compared with the previous quarter.

  Firms’ judgment on current business conditions shows cautiousness, while signs of improvement can be seen. Various surveys showed that current business conditions were almost flat in July. According to the corporate activity-related DI of the Economy Watchers Survey (July survey), current business conditions improved, while prospective business conditions showed a small decrease.

  The number of corporate bankruptcies is almost flat.

The employment situation is improving steadily.

  The employment situation is improving steadily. The total unemployment rate has increased by 0.2 percentage points from the previous month to 3.7% in June. The total unemployment rate of those aged 15 to 24 was 7.2%, an increase of 0.9 percentage points from the previous month. The labor force and the number of unemployed persons increased, while the number of employed persons was flat.

  The number of employees is almost flat recently. The number of new job offers is increasing, and the effective ratio of job offers to applicants is increasing. Overtime hours worked in the manufacturing industry have been in a weak tone recently.

  As for the movement of wages, contractual cash earnings show steady movement. The total amount of cash earnings is increasing moderately.

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


3. Prices and the financial market

Producer prices are rising moderately. Consumer prices are also rising moderately.

  Producer prices are rising moderately.

   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 was 85.5% in July.

  As for short-term prospects, consumer prices (core core) are expected to be on a moderate upward trend for the time being.

As for stock prices, after rising from the 15,200-yen level to the 15,600-yen level, the Nikkei Stock Average declined to the 14,700-yen level, and thereafter rose again to the 15,500- 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.

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