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Monthly Economic ReportExecutive Summary( November 2014 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is on a moderate recovery, while weakness can be seen in private consumption.

  • Private consumption appears to be pausing recently, while it remains in picking up.
  • Business investment shows some weak movements recently, while it is on the increase.
  • Exports are flat.
  • Industrial production is decreasing recently.
  • Corporate profits appear to be pausing as a whole, while it recently shows an improvement in large companies. Firms’ judgment on current business conditions shows a small improvement in large manufacturers, while it appears to be cautious as a whole.
  • The employment situation shows a trend toward improvement, while an increase in job offers to applicant ratio appears to be pausing.
  • Consumer prices are flat recently.

Concerning short-term prospects, although weakness remains for the time being, the economy is expected to recover, supported by the effects of the policies, while employment and income situation show a trend toward improvement. However, attention should be given to the downside risks of the Japanese economy such as declining in consumer sentiment and slowing down of overseas economies.

(Policy stance)

 The Government will make its utmost efforts to ensure the economy overcomes deflation and achieve economic revitalization and fiscal consolidation simultaneously, in addition to accelerate the reconstruction from the Great Earthquake. To this end, the Government steadily implements “Basic Policies for the Economic and Fiscal Management and Reform 2014” and “Japan Revitalization Strategy Revised in 2014”. The Government also continuously pursues to expand the economic virtuous cycles which cover local economies, through directing growing corporate profits towards business investment, wage increase and further improvement in the employment situation.
 The Government will develop a new economic stimulus package to ensure the economic virtuous cycles get on the right track and the fruits of Abenomics spread throughout local economies.
 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 July-September quarter of 2014 decreased by 0.4% on a quarterly basis (at an annual rate of 1.6%), posting negative growth for the second consecutive quarter. Nominal GDP decreased by 0.8% on a quarterly basis, posting negative growth for the second consecutive quarter.

Private consumption appears to be pausing recently, while it remains on a trend of picking up.

  Private consumption appears to be pausing recently, while it remains on a trend of picking up. The factors behind this include that consumer confidence is in a weak tone recently amid steady movements of real gross income of employees.

  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 0.5% in September from the previous month.

  Concerning short-term prospects, consumption is expected to pick up, supported by the improvement trend of the employment and income situations. However, attention should be given to concerns that a decline in consumer confidence continues to put downward pressure on consumption.

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 (April-June quarter survey), show that business investment decreased in the April-June of 2014 by 1.8% from the previous quarter. By industry, business investment decreased for manufacturers by 7.1% from the previous quarter, and increased for non-manufacturers by 0.9%. Capital Goods Shipments, supply-side statistics, show some weak movements recently.

  According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (September 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 increase for three consecutive years. According to the Business Outlook Survey (July-September 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, are picking up 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 showing signs of leveling off recently.

  Housing construction is showing signs of leveling off recently. Construction of owned houses is showing signs of leveling off recently. Construction of houses for rent is flat. Construction of houses for sale shows a steady undertone.

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

  As for short-term prospects, housing construction is expected to be leveling off 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 generally shows steady performance.

  Public investment generally shows steady performance. The amount of contracted public works in October decreased by 7.4% and the amount of public works orders received in September decreased by 15.8% from the previous year. The amount of public construction completed in September increased by 6.7% from the previous year, and 0.3% 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 almost flat. The deficits of the balance of goods and services are flat recently.

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

  The deficits of the balance of goods and services are flat recently.

  The deficit in the balance of trade in September decreased, as the increase in export values was larger than the increase in import values. The deficit in services is flat.


2. Corporate activities and employment

Industrial production is decreasing recently.

  Industrial production is decreasing recently. The Indices of Industrial Production increased by 2.9% from the previous month in September. The Indices of Industrial Inventories decreased by 0.8% from the previous month in September after the fourth consecutive month of increase. Also, the Survey of Production Forecast in Manufacturing expects a decrease of 0.1% from the previous month in October, and an increase of 1.0% in November.

  By industry, transport equipment has been decreasing with a reaction after a last-minute rise in demand before a consumption tax increase. General-purpose, production and business oriented machinery is flat. Electronic parts and devices show a movement of picking up.

  As for short-term prospects, although downward pressure from inventory adjustment would remain for the time being, production is expected to pick up gradually.

Corporate profits appear to be pausing as a whole, while it recently shows an improvement in large companies. Firms’ judgment on current business conditions shows a small improvement in large manufacturers, while it appears to be cautious as a whole. The number of corporate bankruptcies is almost flat

  Corporate profits appear to be pausing as a whole, while it recently shows an improvement in large companies. According to the BOJ Tankan (September survey), sales in fiscal year 2014 are expected to increase, while current profits are expected to decrease. During the July-September quarter of 2014, the increasing rate of current profits of the listed companies from the previous year rose compared with the previous quarter.

  Firms’ judgment on current business conditions shows a small improvement in large manufacturers, while it appears to be cautious as a whole. The Tankan (September survey) revealed that firms’ judgment on current business conditions deteriorated for all enterprises in all industries, while those for large manufacturers slightly improved. Firms' judgment on future business conditions, which indicates the business condition as of December, remained on the same level as that on current business conditions. Various surveys showed that firms' judgment on current business conditions appeared to be cautious as a whole in October. According to the corporate activity-related DI of the Economy Watchers Survey (October survey), current and prospective business conditions showed a decrease.

  The number of corporate bankruptcies is almost flat.

The employment situation shows a trend toward improvement, while an increase in job offers to applicant ratio appears to be pausing.

  The employment situation shows a trend toward improvement, while an increase in job offers to applicant ratio appears to be pausing. The total unemployment rate increased by 0.1 percentage points from the previous month to 3.6% in September. The total unemployment rate of those aged 15 to 24 was 5.9%, an increase of 0.5 percentage points from the previous month. The labor force, the number of unemployed persons, and the number of employed persons increased.

  The number of employees is increasing. The number of new job offers is on a downward trend. The effective ratio of job offers to applicants remains broadly flat. Overtime hours worked in the manufacturing industry are decreasing 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 continue to show a trend toward improvement.


3. Prices and the financial market

Producer prices are declining moderately recently. Consumer prices are flat recently.

  Producer prices are declining moderately recently.

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

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

  As for short-term prospects, consumer prices (core core) are expected to remain flat for the time being, but effects due to an expansion of the "quantitative and qualitative monetary easing" by the Bank of Japan are expected.

As for stock prices, the Nikkei Stock Average rose from the 15,100-yen level to the 17,300-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 107-yen level to the 118-yen level.

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