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Monthly Economic ReportExecutive Summary( February 2016 )

(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 flat 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 and countries with natural resources amid the weakness of overseas economies. In addition, attention should be given to the increased uncertainty in overseas economies and the effects of fluctuations in the financial and capital markets under such circumstances.

(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 swiftly and steadily implements "TPP Policy Plan" , "Urgent Policies to Realize a Society in Which All Citizens are Dynamically Engaged"and the FY2015 supplementary budget based on them. And the Government also works for early passage of the FY2016 budget and the related bills.
 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 "Fiscal 2016 Economic Outlook and Basic Stance for Economic and Fiscal Management" on January 22nd, 2016 and the "Action Plan for Strengthening Industrial Competitiveness" (FY2016 version) on February 5th, 2016.
 The Bank of Japan decided to introduce "Quantitative and Qualitative Monetary Easing (QQE) with a Negative Interest Rate" in order to achieve the price stability target of two percent on January 29th, 2016.
 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 2015 decreased by 0.4% on a quarterly basis (at an annual rate of 1.4%), posting negative growth for the first time in two quarters. Nominal GDP decreased by 0.3% on a quarterly basis, posting negative growth for the first time in two quarters.

Private consumption holds firm as a whole.

  Private consumption holds firm as a whole. Real gross income of employees and consumer sentiment are 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 0.1% in December 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, are almost flat.

  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 is almost flat, while it shows some weak movements recently. Construction of 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 moderately decreasing.

  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 January decreased by 2.6% and the amount of public works orders received in December decreased by 5.4% from the previous year. The amount of public construction completed in December decreased by 7.8% from the previous year, and by 1.5% 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 on a decreasing trend.

  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 and the EU are almost flat. Imports from the U.S. are in a weak tone. 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 surplus in the balance of trade in December decreased, as export values decreased to a greater extent than import values. The deficit in the balance of services increased.


2. Corporate activities and employment

Industrial production is flat recently.

  Industrial production is flat recently. The Indices of Industrial Production decreased by 1.7% from the previous month in December. The Indices of Industrial Inventories increased by 0.4% from the previous month in December. The Survey of Production Forecast in Manufacturing expects an increase of 7.6% in January, and a decrease of 4.1% in February.

  By industry, transport equipment shows movements of picking up. General-purpose, production and business-oriented machinery are decreasing. 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 BOJ Tankan (December survey), sales in fiscal year 2015 are expected to decrease, while current profits are expected to increase for four consecutive years. During the October-December quarter of 2015, current profits of the listed companies show a trend toward improvement.

  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 (January survey), current conditions fell, while 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 was 3.3% in December, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 5.2%, the same level as the previous month. The labor force and the number of employed persons and unemployed persons increased.

  The number of employees is increasing. The number of new job offers is increasing. The effective ratio of job offers to applicants is rising. 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.

  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 79.3% in January.

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

As for stock prices, after rising from the 16,000-yen level to the 17,800-yen level, the Nikkei Stock Average declined to the 14,900-yen level, and thereafter rose to the 16,000-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 117-yen level to the 121-yen level, and thereafter moved in the direction of appreciation to the 112-yen level.

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