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Monthly Economic ReportExecutive Summary( Feb 2014 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is recovering at a moderate pace.

  • Exports are flat. Industrial production is increasing at a moderate pace.
  • Corporate profits are improving. Business investment is picking up.
  • Firms' judgment on current business conditions is broadly improving.
  • The employment situation is improving steadily.
  • Private consumption is increasing, while showing a last-minute rise in demand before a consumption tax increase in some sectors.
  • Prices are rising moderately.

Concerning short-term prospects, the economy is expected to be on a recovery trend as household income and business investment increase, while exports move toward picking up and the effects of the policies support. However, slowing down of overseas economies is still downside risk of the Japanese economy. A last-minute rise in demand before a consumption tax increase and subsequent negative reaction are expected.

(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 passage of the FY2014 budget and the related bills.
  The Government decided the "Fiscal 2014 Economic Outlook and Basic Stance for Economic and Fiscal Management" and "Industrial Competitiveness Enhancement Action Plan" on January 24th. In addition, the Diet passed the FY2013 supplementary budget on February 6th.
  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 October - December quarter of 2013 increased by 0.3% on a quarterly basis (at an annual rate of 1.0%), posting positive growth for the fourth consecutive quarter. Nominal GDP increased by 0.4% on a quarterly basis, posting positive growth for the fifth consecutive quarter. 

Private consumption is increasing, while showing a last-minute rise in demand before a consumption tax increase in some sectors.

  Private consumption is increasing. One of the factors behind this is that although consumer confidence is in a weak tone recently, real income of employees holds firm, and that a last-minute rise in demand before a consumption tax increase is seen in some sectors. 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 0.3% in December from the previous month, while it has been flat in terms of the three-month moving average.

  Concerning short-term prospects, a last-minute rise in demand before a consumption tax increase and a following decline as a reaction are expected. After that, consumption is expected to pick up 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 (July-September quarter survey), demand-side statistics, shows that business investment decreased in the July-September quarter of 2013 by 0.5% from the previous quarter, the first decline in four quarters. By industry, business investment decreased for manufacturers by 0.7% from the previous quarter after a decline of 1.0% in the April-June quarter. Meanwhile, business investment decreased for non-manufacturers by 0.4%, the first decline after three consecutive quarters of increase since the October-December quarter of 2012. Capital Goods Shipments, supply-side statistics, are picking up. According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (December survey), planned business investment for manufactures in fiscal year 2013 is expected to increase for three consecutive years, and that for non-manufacturers is expected to increase for two consecutive years, thus, for all industries, investment is expected to increase for the second consecutive year. According to the Business Outlook Survey (October-December quarter survey), 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. Planned construction cost has growing at a slower pace recently.

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

Housing construction is increasing with a last-minute rise in demand before a consumption tax increase.

  Housing construction is increasing with a last-minute rise in demand before a consumption tax increase. Construction of owned houses and houses for rent is increasing. Construction of houses for sale is flat. The total number of sales of condominiums in the Tokyo metropolitan area is in a weak tone recently.

  As for short-term prospects, housing construction may show a slowdown in growth due to a possible decline in demand as a reaction to a last-minute rise. In addition, the supply-demand situations of construction workers should be closely monitored.

Public investment holds firm.

   Public investment holds firm. The amount of contracted public works in January 2014 and the amount of public works orders received in December 2013 increased by 28.8% and 7.8% respectively from the previous year.

   The amount of public construction completed in December 2013 increased by 20.9% from the previous year, despite a decline of 0.2% 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.

  In the general account of the budget plan for FY 2014, the government plans to increase expenses relate to public investment by 12.9% (1.9%, excluding effects of the special accounts reform) from the previous fiscal year. Under the fiscal plans of local governments for FY 2014, local public investment expenses undertaken by local governments on their own funding are planned to increase by 4.2% from the previous fiscal year.

Exports are flat. Imports are picking up. 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 and others are flat recently. As for short-term prospects, exports are expected to pick up gradually, 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 are picking up. By region, imports from Asia are picking up. Imports from the U.S. are flat. Imports from EU show movements of picking up. As for short-term prospects, imports are expected to remain on a pickup trend.

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

  The deficit in the balance of trade in December increased, as export values decreased and import values increased. 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 industry, transport equipment, and general-purpose, production and business oriented machinery are increasing at a moderate pace. Electronic parts and devices are flat.

  As for short-term prospects, production is expected to increase at a moderate pace, reflecting good domestic demand and the improvement of export conditions. However, attention should be paid to any influence of fluctuations in demand before and after a consumption tax increase.

  Also, the Survey of Production Forecasts expects increases of 6.1% and 0.3% in January and February, respectively.

Corporate profits are improving. Firms’ judgment on current business conditions is broadly improving. The number of corporate bankruptcies is decreasing at a moderate pace.

  Corporate profits are improving. According to the BOJ Tankan (December survey), sales in fiscal year 2013 are expected to increase for four consecutive years, and current profits are expected to increase for two consecutive years. During the October - December quarter of 2013, the profits of the listed companies increased form the previous year both for manufacturers and non-manufacturers.

  Firms’ judgment on current business conditions is broadly improving. The Tankan (December survey) revealed that firms’ judgment on current business conditions improved by 6 points 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 6 points, that for small manufacturers improved by 10 points, and that for small non-manufacturers improved by 5 points. According to the corporate activity-related DI of the Economy Watchers Survey (January survey), current business conditions fell, with a fall in prospective business conditions mainly due to 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 decreased by 0.3 percentage points from the previous month to 3.7% in December. The total unemployment rate of those aged 15 to 24 was 5.9%, a decrease of 0.9 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons all decreased.

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

  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.

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


3. Prices and the financial market

Prices are rising moderately.

  Prices are rising moderately.

  Domestic corporate goods 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 increased from the previous month in January.

  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 declining from the 15,600-yen level to the 14,000-yen level, the Nikkei Stock Average rose to the 14,800-yen level, and thereafter declined again to the 14,300-yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 104-yen level to the 101-yen level, and thereafter moved in the direction of depreciation to the 102-yen level, before moving again in the direction of appreciation to the 101-yen level.

Cabinet Office, Government of Japan1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan.
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