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Monthly Economic ReportExecutive Summary( Octber 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 recently.

  • 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 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 a small improvement in large manufacturers.
  • The employment situation is improving steadily.
  • Consumer prices are rising at a slower tempo 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 improve. 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 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 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 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. Although a reaction after a last-minute rise in demand before a consumption tax increase is gradually easing amid steady movements of real gross income of employees, movements of picking up appear to be pausing recently partly due to weather effects. In addition, movements of picking up in consumer confidence appear to be pausing recently 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 0.4% in August 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 the reaction after the 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 (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 moderately decreasing.

  Housing construction is moderately decreasing. Construction of owned houses is moderately decreasing. Construction of houses for rent is decreasing recently. 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 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 generally shows steady performance.

  Public investment generally shows steady performance. The amount of contracted public works in September decreased by 8.2% and the amount of public works orders received in August decreased by 0.9% from the previous year. The amount of public construction completed in August increased by 8.7% from the previous year, and 1.4% 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 flat recently.

  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 almost 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 flat recently.

  The deficit in the balance of trade in August increased, as export values slightly decreased and import values were flat. The deficit in services decreased.


2. Corporate activities and employment

Industrial production has been decreasing recently with a reaction after a last-minute rise in demand before a consumption tax increase.

  Industrial production has been decreasing recently with a reaction after a last-minute rise in demand before a consumption tax increase. The Indices of Industrial Production decreased by 1.9% from the previous month in August with an increase in inventory. Also, the Survey of Production Forecast in Manufacturing expects an increase of 6.0% from the previous month in September, and a decrease of 0.2% in October.

  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 the reaction after the 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 is cautious, while it shows a small improvement in large manufacturers. The number of corporate bankruptcies is almost flat.

  Corporate profits improvement appears to be pausing. According to the Quarterly Financial Statements Statistics of Corporations by Industry (April-June survey), corporate profits during the April-June quarter of 2014 increased by 4.5% from the previous year and decreased by 3.2% from the previous quarter. By size of company, large and small companies saw increases of 4.7% and 3.9% in corporate profits from the previous year, respectively. According to the BOJ Tankan (September survey), sales in fiscal year 2014 are expected to increase, while current profits are expected to decrease.

  Firms’ judgment on current business conditions is cautious, while it shows a small improvement in large manufacturers. 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 current business conditions were almost flat in September. According to the corporate activity-related DI of the Economy Watchers Survey (September survey), current and prospective business conditions showed a 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 decreased by 0.3 percentage points from the previous month to 3.5% in August. The total unemployment rate of those aged 15 to 24 was 5.4%, a decrease of 1.3 percentage points from the previous month. The labor force and the number of unemployed persons decreased, while the number of employed persons increased.

  The number of employees is on an upward trend recently. The number of new job offers and the effective ratio of job offers to applicants remain 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.

  According to the BOJ Tankan (September survey), firms' judgment on current employment conditions showed that labor shortage increased.

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


3. Prices and the financial market

Producer prices are flat recently. Consumer prices are rising at a slower tempo recently.

  Producer prices are flat recently.

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

  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, the Nikkei Stock Average declined from the 16,200-yen level to the 14,500-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 108-yen level to the 109-yen level, and thereafter moved in the direction of appreciation to the 106-yen level.

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