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Monthly Economic ReportExecutive Summary( September 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 some areas.

  • 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 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 , 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 implements economic and fiscal policies based on the"Basic Policies for the Economic and Fiscal Management and Reform 2014" , and steadily implements 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

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 income of employees, movements of picking up appear to be pausing recently partly due to weather effects. In addition, consumer confidence is picking up at a slower tempo 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.), decreased by 0.6% in July 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) (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 (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, 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 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 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 generally shows steady performance.

  Public investment generally shows steady performance. The amount of contracted public works in August decreased by 8.1% and the amount of public works orders received in July increased by 21.0% from the previous year. The amount of public construction completed in July increased by 6.3% from the previous year, and 0.8% 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 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 July increased, as export values were flat and import values slightly increased. 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 increased by 0.4% from the previous month in July. Also, the Survey of Production Forecast in Manufacturing expects an increase of 1.3% from the previous month in August, and 3.5% in September.

  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 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 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 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 (June survey), sales in fiscal year 2014 are expected to increase, while current profits are expected to decrease.

  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 increased by 0.1 percentage points from the previous month to 3.8% in July. The total unemployment rate of those aged 15 to 24 was 6.7%, a decrease of 0.5 percentage points from the previous month. The number of unemployed persons increased, while the number of employed persons decreased. The labor force slightly decreased in July after the second consecutive month of increase.

  The number of employees is increasing recently. The number of new job offers remains broadly flat, and the effective ratio of job offers to applicants is on an upward trend. Overtime hours worked in the manufacturing industry are in a weak tone.

  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 at a slower tempo recently. Consumer prices are rising moderately.

  Producer prices are rising at a slower tempo recently.

   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 rose from the previous month in August.

  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 15,500-yen level to the 15,400-yen level, the Nikkei Stock Average rose 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 107-yen level.

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