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Monthly Economic ReportExecutive Summary( Dec 2016 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is on a moderate recovery, while delayed improvement in part can be seen.

  • Private consumption shows movements of picking up.
  • Business investment improvement appears to be pausing.
  • Exports show movements of picking up.
  • Industrial production is picking up.
  • Corporate profits improvement appears to be pausing, although they remain at a high level. Firms' judgment on current business conditions is improving slowly.
  • The employment situation is improving.
  • Consumer prices are flat.

  Concerning short-term prospects, the economy is expected to recover, supported by the effects of the policies, while employment and income situation is improving. However, attention should be given to the uncertainty in overseas economies and the effects of fluctuations in the financial and capital markets.

(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 make effort toward the reconstruction and revitalization from the Great East Japan Earthquake. To this end, the Government steadily implements the "Basic Policies for Economic and Fiscal Management and Reform 2016", the "Japan Revitalization Strategy 2016" , the "Regulatory Reform Work Plan" , the "Basic Policies for Overcoming Population Decline and Vitalizing Local Economy in Japan 2016", and the "Japan's Plan for the Dynamic Engagement of All Citizens". In addition, the government promotes working-style reform. The government publicly released a draft of guidelines for "equal pay for equal work" in December 20th. The Government also develops a concreate action plan by the end of FY2016, and implements "Economic Measures for Realizing Investment for the Future" and the FY2016 supplementary budget swiftly and steadily in order to overcome deflation completely and pave the way for steady economic growth.
  Utilizing the FY2016 supplementary budget etc., the Government will make sure to support for the daily lives of those affected by the 2016 Kumamoto Earthquake, and also work on promoting early recovery of the local economy and industries.
  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 FY2017 Budget Formulation" (November 29th , Cabinet decision)
  * "Fiscal 2017 Economic Outlook and Basic Stance for Economic and Fiscal Management" (December 20th , Approval of Cabinet)
  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 shows movements of picking up.

  Private consumption shows movements of picking up. Real wage income of employees is increasing moderately. Consumer confidence shows movements of picking up

  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 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 improvement appears to be pausing.

  Business investment improvement appears to be pausing. The Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey) show that business investment increased in the July-September quarter of 2016 by 0.4% from the previous quarter after decreasing in the April-June quarter of 2016 by 1.2%. By industry, business investment decreased for manufacturers by 2.5% from the previous quarter, and increased for non-manufacturers by 2.1%. Capital Goods Shipments and Imports, supply-side statistics, have been 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 2016 is expected to increase for five consecutive years, that for manufacturers is expected to increase for six consecutive years, while that for non-manufacturers is expected to decrease for the first time in five years. According to the Business Outlook Survey (October-December survey), planned business investment in fiscal year 2016 is expected to increase for manufacturers, and decrease for non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, appear to be pausing.

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

Housing construction is flat.

  Housing construction is flat. Construction of owned houses is almost flat. Construction of houses for rent is increasing. Construction of houses for sale is in a weak tone. 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 holds firm.

  Public investment holds firm. The amount of public construction completed in October decreased by 1.3% from the previous month, and decreased by 4.2% from the previous year. The amount of contracted public works in November decreased by 5.7% and the amount of public works orders received in October decreased by 17.1% from the previous year.

  As for short-term prospects, a boosting effect by the supplementary budget is expected.

Exports show movements of picking up. Imports are almost flat. The surplus in the balance of goods and services is on an increasing trend.

  Exports show movements of picking up. By region, exports to Asia show movements of picking up. Exports to the U.S., the EU and other regions are almost flat. As for short-term prospects, exports are expected to pick up, mainly reflecting the moderate recovery of overseas economies.

  Imports are almost flat. By region, imports from Asia and the EU are almost flat. Imports from the U.S. have been showing movements of picking up recently. As for short-term prospects, imports are expected to pick up gradually.

  The surplus in the balance of goods and services is on an increasing trend.

  The surplus in the balance of trade in October increased, as export values increased to a greater extent than import values. The balance of services moved to surplus.


2. Corporate activities and employment

Industrial production is picking up.

  Industrial production is picking up. The Indices of Industrial Production increased by 0.0% from the previous month in October. The Indices of Industrial Inventories decreased by 2.1% from the previous month in October. The Survey of Production Forecast in Manufacturing expects an increase of 4.5% in November, and a decrease of 0.6% in December.

  By industry, transport equipment and electronic parts and devices are picking up. General-purpose, production and business-oriented machinery are showing movements of picking up.

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

Corporate profits improvement appears to be pausing, although they remain at a high level. Firms' judgment on current business conditions is improving slowly. The number of corporate bankruptcies is almost flat.

  Corporate profits improvement appears to be pausing, although they remain at a high level. According to the Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey), corporate profits during the July-September quarter of 2016 increased by 11.5% from the previous year, and by 7.9% from the previous quarter. By industry, manufacturers saw a decrease in corporate profits of 12.2% in corporate profits from the previous year, while non-manufacturers saw an increase of 24.5%. By size of company, large and medium-sized companies saw an increase of 14.8% from the previous year, and small companies saw an increase of 1.9%. According to the BOJ Tankan (December Survey), in fiscal year 2016, sales are expected to decrease by 3.4% in the first half of the year, and are expected to increase by 0.1% in the second half from the previous year. Current profits are expected to decrease by 9.4% in the first half, and decrease by 6.9% in the second half from the previous year.

  Firms' judgment on current business condition is improving slowly. The Tankan (December survey) revealed that firms' judgment on current business conditions has improved for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business condition as of March, becomes more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (November survey), current and prospective business conditions rose.

  The number of corporate bankruptcies is almost flat.

The employment situation is improving.

  The employment situation is improving. The total unemployment rate stood at 3.0% in October, 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 increasing. The number of new job offers is increasing. The effective ratio of job offers to applicants is increasing. 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 shows that the sense of a labor shortage is becoming stronger

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


3. Prices and the financial market

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

  Producer prices are rising moderately recently.

  Consumer prices, in terms of general, excluding fresh food, petroleum products and other specific components, are flat.

  According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 74.2% in November, an increase of 0.4% points from the previous month.

  As for short-term prospects, consumer prices (general, excluding fresh food, petroleum products and other specific components) are expected to rise moderately, but they are expected to remain flat for the time being.

As for stock prices, the Nikkei Stock Average rose from the 18,300 yen-level to the 19,300-yen level. The yen against the U.S. dollar (inter-bank spot rate) moved in the direction of depreciation from the 112-yen level to the 117-yen level.

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