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Monthly Economic ReportExecutive Summary( December 2015 )

(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 holds firm as a whole.
  • Business investment is almost flat.
  • Exports are in a weak tone.
  • Industrial production is in a weak tone recently.
  • Corporate profits are improving. Firms’ judgment on current business conditions is almost flat, while cautiousness can be seen in some areas.
  • The employment situation is improving.
  • Consumer prices are rising moderately.

  Concerning short-term prospects, the economy is expected toward recovery, supported by the effects of the policies, while employment and income situation is improving. However, there are downside risks of the Japanese economy including slowing down of emerging Asian economies including the Chinese economy amid the advance in the process of U.S. monetary policy normalization.

(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 the "Basic Policy on Economic and Fiscal Management and Reform 2015", the "Japan Revitalization Strategy Revised in 2015", the "Regulatory Reform Work Plan" and the "Basic Policy for Overcoming Population Decline and Vitalizing Local Economy in Japan 2015". The Government also steadily implements "TPP Policy Plan" and "Urgent Policies to Realize a Society in Which All Citizens are Dynamically Engaged" decided in November.
 The Government continuously pursues to expand the economic virtuous cycles which cover local areas, SMEs and small-scale businesses, through directing growing corporate profits towards investment, wage increase and further improvement in the employment situation by these measures.
 The Government decided the following actions.
  • "Basic Principles of FY2016 Budget Formulation" (November 27th , Cabinet decision)
  • "The FY2015 Supplementary Budget" (December 18th , Cabinet decision)

 The Government expects the Bank of Japan to achieve the price stability target of two percent in light of economic activity and prices.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption holds firm as a whole.

  Private consumption holds firm as a whole. Real gross income of employees is picking up. Movements of picking up in consumer sentiment appear to be pausing.

  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 0.2% in October from the previous month.

  Concerning short-term prospects, consumption is expected to pick up, supported by the improvement in the employment and income situations.

Business investment is almost flat.

  Business investment is almost flat. The Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey) show that business investment increased in the July-September quarter of 2015 by 5.4% from the previous quarter after decreasing in the April-June quarter of 2015 by 2.7%. By industry, business investment increased for manufacturers by 7.6% from the previous quarter, and increased for non-manufacturers by 4.3%. Capital Goods Shipments, supply-side statistics, show some weak movements recently.

  According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (December survey), planned business investment for all industries and that for non-manufacturers in fiscal year 2015 are expected to increase for four consecutive years, and that for manufacturers is expected to increase for five consecutive years. According to the Business Outlook Survey (October-December survey), planned business investment in fiscal year 2015 is expected to increase for both large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, show movements of picking up.

  As for short-term prospects, business investment is expected to increase, mainly reflecting the improvement of corporate profits.

Housing construction is almost flat.

  Housing construction is almost flat. Construction of owned houses, houses for rent, and houses for sale are almost flat. In addition, the total number of sales of condominiums in the Tokyo metropolitan area is almost flat.

  As for short-term prospects, housing construction is expected to remain flat for the time being.

Public investment is decreasing moderately.

  Public investment is decreasing moderately. The amount of contracted public works in November increased by 3.3% and the amount of public works orders received in October decreased by 4.5% from the previous year. The amount of public construction completed in October decreased by 1.5% from the previous year, and increased by 0.0% from the previous month.

  As for short-term prospects, public investment is expected to continue to decline moderately.

Exports are in a weak tone. Imports are almost flat. The deficit in the balance of goods and services is almost flat.

  Exports are in a weak tone. By region, exports to Asia and other regions are in a weak tone. Exports to the U.S. are decreasing moderately. Exports to the EU are almost flat.As for short-term prospects, exports are expected to pick up gradually, mainly reflecting the moderate recovery of 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, the U.S. and the EU are almost flat. As for short-term prospects, imports are expected to pick up gradually.

  The deficit in the balance of goods and services is almost flat.

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


2. Corporate activities and employment

Industrial production is in a weak tone recently.

  Industrial production is in a weak tone recently. The Indices of Industrial Production increased by 1.4% from the previous month in October. The Indices of Industrial Inventories decreased by 1.9% from the previous month in October. The Survey of Production Forecast in Manufacturing expects an increase of 0.2% in November, and a decrease of 0.9% in December.

  By industry, transport equipment is flat recently. General-purpose, production and business oriented machinery are decreasing recently. Electronic parts and devices are flat.

  As for short-term prospects, production is expected to pick up gradually mainly reflecting the moderate recovery of overseas economies.

Corporate profits are improving. Firms' judgment on current business conditions is almost flat, while cautiousness can be seen in some areas. The number of corporate bankruptcies is almost flat.

  Corporate profits are improving. According to the Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey), corporate profits during the July-September quarter of 2015 increased by 9.0% from the previous year and decreased by 6.3% from the previous quarter. By size of company, large and medium-sized companies saw an increase of 6.4% in corporate profits from the previous year, and small companies saw an increase of 16.8%. According to the BOJ Tankan (December survey), sales in fiscal year 2015 are expected to decrease, while current profits are expected to increase for four consecutive years.

  Firms' judgment on current business conditions is almost flat, while cautiousness can be seen in some areas.The Tankan (December survey) revealed that firms' judgment on current business conditions is almost flat for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business condition as of March, deteriorated from that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (November survey), current business conditions rose, while prospective business conditions fell.

  The number of corporate bankruptcies is almost flat.

The employment situation is improving.

  The employment situation is improving. The total unemployment rate was 3.1% in October, a decrease of 0.3 percentage points from the previous month. The total unemployment rate of those aged 15 to 24 was 5.5%, a decrease of 0.4 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons decreased.

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

  As for the movement of wages, contractual cash earnings are almost flat. The total amount of cash earnings is increasing moderately.

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

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


3. Prices and the financial market

Producer prices are declining moderately. Consumer prices are rising moderately.

  Producer prices are declining 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 was 82.1% in November.

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

As for stock prices, after declining from the 19,900-yen level to the 18,500-yen level, the Nikkei Stock Average rose to the 19,300-yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 122-yen level to the 120-yen level, and thereafter moved in the direction of depreciation to the 122-yen level.

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