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Monthly Economic ReportExecutive Summary( February 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 private consumption.

  • Private consumption holds firm, while weakness can be seen in consumer sentiment recently.
  • Business investment is almost flat.
  • Exports show movements of picking up recently.
  • Industrial production is showing movements of picking up.
  • Corporate profits remain almost flat as a whole, while showing an improvement in large manufacturers. Firms’ judgment on current business conditions is almost flat.
  • The employment situation shows a trend toward improvement.
  • Consumer prices are flat.

   Concerning short-term prospects, the economy is expected to recover, supported by the effects of downfall in oil prices and 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 weakening 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”. And the Government also steadily implements “The Efforts of Government-Labor-Management towards Realizing a Positive Cycle of the Economy”. The Government 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 swiftly and steadily implements “Immediate Economic Measures for Extending Virtuous Cycles to the Local Economies” and the FY2014 supplementary budget to target at vulnerable parts of the current economy and intend to solve such vulnerabilities as soon as possible.
 And the Government also works for early passage of the FY2015 budget and the related bills.
 The Government decided the “Action Plan for Strengthening Industrial Competitiveness” (FY2015 version) on February 10th, 2015 and the “Fiscal 2015 Economic Outlook and Basic Stance for Economic and Fiscal Management” on February 12th, 2015.
 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

  Real GDP (gross domestic product) in the October-December quarter of 2014 increased by 0.6% on a quarterly basis (at an annual rate of 2.2%), posting positive growth for the first time in three quarters. Nominal GDP increased by 1.1% on a quarterly basis, posting positive growth for the first time in two quarters.

Private consumption holds firm, while weakness can be seen in consumer sentiment.

  Private consumption holds firm, while weakness can be seen in consumer sentiment.

  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 December from the previous month. The factors behind this include steady movements of real gross income of employees. Moreover, consumer confidence is bottoming out.

  Concerning short-term prospects, consumption is expected to remain steady for the time being, supported by the improvement trend in the employment and income situations. However, attention should be given to concerns that a weakness of consumer sentiment puts downward pressure on consumption.

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 2014 by 3.1% from the previous quarter. By industry, business investment increased for manufacturers by 9.3% from the previous quarter, and also increased for non-manufacturers by 0.1%. Capital Goods Shipments, supply-side statistics, are showing movements of picking up recently.

  According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (December 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 (October-December 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 almost flat.

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

Housing construction has shown a steady undertone.

  Housing construction has shown a steady undertone. Construction of owned houses is flat. Construction of houses for rent is picking up. Construction of houses for sale is almost flat.

  The total number of sales of condominiums in the Tokyo metropolitan area shows movements of picking up recently.

  As for short-term prospects, housing construction is expected to show steady movement. However, movements of construction costs and the supply-demand situations of construction workers should be closely monitored continuously.

Public investment is in a weak tone recently.

  Public investment is in a weak tone recently. The amount of contracted public works in January decreased by 13.7% and the amount of public works orders received in December increased by 0.9% from the previous year. The amount of public construction completed in December increased by 3.7% from the previous year, and increased by 0.1% from the previous month.

  As for short-term prospects, public investment is expected to be weak.

Exports show movements of picking up recently. Imports are almost flat. The deficits of the balance of goods and services are on a decreasing trend.

  Exports show movements of picking up recently. By region, exports to Asia and the U.S. show movements of picking up recently. Exports to EU and other regions are 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 and EU are almost flat. Imports from the U.S. show movements of picking up. As for short-term prospects, imports are expected to pick up gradually.

  The deficit in the balance of goods and services is on a decreasing trend.

  The deficit in the balance of trade in December decreased, as export values increased and import values decreased partly due to the effects of the drop in oil prices. The deficit in services increased.


2. Corporate activities and employment

Industrial production is showing movements of picking up.

  Industrial production is showing movements of picking up. The Indices of Industrial Production increased by 0.8% from the previous month in December. The Indices of Industrial Inventories decreased by 0.7% from the previous month in December, a decrease for the first time in two months. Also, the Survey of Production Forecast in Manufacturing expects an increase of 6.3% from the previous month in January, and a decrease of 1.8% in February.

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

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

Corporate profits remain almost flat as a whole, while showing an improvement in large manufacturers. Firms' judgment on current business conditions is almost flat. The number of corporate bankruptcies is decreasing at a moderate pace.

  Corporate profits remain almost flat as a whole, while showing an improvement in large manufacturers. According to the BOJ Tankan (December survey), sales in fiscal year 2014 are expected to increase, while current profits are expected to decrease. During the October-December quarter of 2014, current profits of the listed companies remain almost flat as a whole.

  Firms' judgment on current business conditions is almost flat. 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. Various surveys showed that firms' judgment on current business conditions is almost flat. According to the corporate activity-related DI of the Economy Watchers Survey (January survey), current and prospective business conditions showed an increase.

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

The employment situation shows a trend toward improvement.

  The employment situation shows a trend toward improvement. The total unemployment rate decreased by 0.1 percentage points from the previous month to 3.4% in December. The total unemployment rate of those aged 15 to 24 was 6.4%, the same level as the previous month. The labor force and the number of employed persons increased, while the number of unemployed persons decreased.

  The number of employees is almost flat recently. The number of new job offers shows movements of picking up and the effective ratio of job offers to applicants is increasing. Overtime hours worked in the manufacturing industry show movements of picking up.

  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. Consumer prices are flat.

  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 flat.

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

  As for short-term prospects, consumer prices (core core) are expected to remain flat for the time being, partly due to the effects of the drop in oil prices and movement of the yen in the direction of depreciation.

As for stock prices, the Nikkei Stock Average rose from the 17,300-yen level to the 17,900-yen level. The yen against the U.S. dollar is mostly staying at the 117-yen level or the 118-yen level.

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