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Monthly Economic ReportExecutive Summary( Jan 2014 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is recovering at a moderate pace.

  • Exports are in a weak tone recently. 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.
  • Private consumption is increasing, showing a last-minute rise in demand before a consumption tax increase in some sectors.
  • Prices hold firm.

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".

  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 increasing, 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 while consumer confidence is almost flat, real income of employees hold 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.), increased by 0.8% in November in comparison to October, while it also increased in terms of the three-month moving average.

  Concerning short-term prospects, consumption is expected 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 in some sectors. However, a decline in demand as a reaction to the rise should be closely monitored.

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, show 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 quarter-by-quarter 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) 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 (October-December quarter 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 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 in a weak tone recently. The total number of sales of condominiums in the Tokyo metropolitan area, which had been increasing, seems slowing down recently.

  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, a decline in demand as a reaction to the rise, and 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 December 2013 and the amount of public works orders received in November 2013 increased by 7.5% and 7.6% respectively from the previous year. The turnover of public construction in October 2013 increased by 25.6% from the previous year.

  As for short-term prospects, public investment is expected to show steady movement due to the execution of related budgets. In addition, in the FY2013 supplementary budget plan decided by the Government on December 12, 2013, the Government plans to take budgetary measures including "recovery/reconstruction of areas damaged by the Great East Japan Earthquake," and "improvement of the nation’s resilience, acceleration of disaster prevention/mitigation, and addressing aging infrastructure, and enhancement of nuclear accident response and nuclear disaster control measures."

  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 about 4.5% from the previous fiscal year.

Exports are in a weak tone recently. Imports are picking up. The deficits of the balance of goods and services are on an upward trend.

  Exports are in a weak tone recently. By region, exports to Asia are almost flat. Exports to the U.S. and EU are flat recently. On the other hand, exports to others seem to be in a weak tone 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 almost 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 November decreased, as export values increased and import values decreased. The deficit in services decreased.


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, transport equipment is picking up. General-purpose, production and business oriented machinery is 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 domestic demand being in good condition and the improvement of export conditions.

  Also, the Survey of Production Forecasts expects increases of 2.8% and 4.6% in December and January, 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 Quarterly Financial Statements Statistics of Corporations by Industry (July-September quarter survey), corporate profits during the July-September quarter of 2013 increased by 24.1% from the previous year, but decreased by 1.6% from the previous quarter. By size of company, large and small companies saw increases of 26.1% and 18.3% in corporate profits, respectively. According to the BOJ Tankan (December 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 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 (December survey), both current and prospective business conditions improved. However, according to the Business Outlook Survey (October-December quarter survey), when asked about their judgment on business conditions (BSI on business conditions) for the April-June quarter, three months immediately after the consumption tax increase, a larger percentage of the respondents answered "falling" than those saying the opposite both among large enterprises and medium-sized and small ones.

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

The employment situation is improving.

   The employment situation is improving. The total unemployment rate stood at 4.0% in November, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 6.8%, an increase of 0.3 percentage points from the previous month. The labor force and the number of employed persons, and the number of unemployed persons decreased.

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

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

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


3. Prices and the financial market

Prices hold firm.

  Prices hold firm. However, sustainability of the firmness should be closely monitored.

  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"), hold firm

  . 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 November.

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

As for stock prices, after rising from the 16,000-yen level to the 16,200-yen level, the Nikkei Stock Average declined to the 15,800-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 104-yen level to the 105-yen level, and thereafter moved in the direction of appreciation to the 104-yen level.

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