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Monthly Economic ReportExecutive Summary( Feb 2018 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is recovering at a moderate pace.

  • Private consumption is picking up.
  • Business investment is increasing moderately.
  • Exports are picking up.
  • Industrial production is increasing moderately.
  • Corporate profits are improving. Firms' judgment on current business conditions is improving.
  • The employment situation is improving steadily.
  • Consumer prices are flat.

  Concerning short-term prospects, the economy is expected to continue recovering, 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 and the restoration and reconstruction from the 2016 Kumamoto Earthquake. To this end, the Government steadily implements the "Basic Policies for Economic and Fiscal Management and Reform 2017", the "Growth Strategy 2017", the "Regulatory Reform Work Plan", the "Basic Policies for Overcoming Population Decline and Vitalizing Local Economy in Japan 2017", and the "Japan's Plan for the Dynamic Engagement of All Citizens". Moreover, in order to tackle the enormous challenge of the declining birthrate and aging population by promoting Supply System Innovation and Human Resources Development as two wheels of a cart, the Government will steadily implements the "New Economic Policy Package" deicided in last December. About work style reform, based on "The Action Plan for the Realization of Work Style Reform" decided in last March, the Government will promptly try to revise the Act regarding establishing a Sophisticated Professional System and revising the Discretionary Working System for Management-related Work, in addition to submit bills to the Diet at an early date. In addition, the Government implements the FY2017 supplementary budget swiftly and steadily. And the Government works for early passage of the FY2018 budget and the related bills.
  The Government decided the "Fiscal 2018 Economic Outlook and Basic Stance for Economic and Fiscal Management" on January 22nd.
  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.
  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 2017 increased by 0.1% on a quarterly basis (at an annual rate of 0.5%), posting positive growth for the eighth consecutive quarter. Nominal GDP decreased by 0.0% on a quarterly basis, posting negative growth for the first time in five quarters.

Private consumption is picking up.

  Private consumption is picking up. Real wage income of employees is increasing moderately. Consumer confidence is 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 Shipment's, etc.), decreased by 1.0% in December from the previous month.

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

Business investment is increasing moderately.

  Business investment is increasing moderately. The Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey) show that business investment increased in the July-September quarter of 2017 by 1.0% from the previous quarter after decreasing in the April-June quarter of 2017 by 2.0%. By industry, business investment increased for manufacturers by 0.5% from the previous quarter, and increased for non-manufacturers by 1.3%. Capital Goods Shipments and Imports, supply-side statistics, are picking up.

  According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (December survey) and the Business Outlook Survey (October-December survey), planned business investment for all industries in fiscal year 2017 is expected to increase. 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 and actions in growth sectors.

Housing construction is in a weak tone.

  Housing construction is in a weak tone. Construction of owned houses and houses for rent is in a weak tone. Construction of houses for sale is almost flat. In addition, the total number of sales of condominiums in the Tokyo metropolitan area has shown movements of picking up.

  As for short-term prospects, housing construction is expected to remain in a weak tone for the time being.

Public investment holds firm.

  Public investment holds firm. With a high level of public construction work remained, the amount of public construction completed in December increased by 1.0% from the previous month, the amount of contracted public works in January decreased by 11.5% from the previous month, and the amount of public works orders received in December decreased by 2.9% from the previous year.

  As for short-term prospects, public investment, partly due to the effect of the supplementary budget, is expected to show steady performance.

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

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

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

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

  The surplus in the balance of trade in December decreased, as export values decreased while import values increased. The deficit in the balance of services decreased.


2. Corporate activities and employment

Industrial production is increasing moderately.

  Industrial production is increasing moderately. The Indices of Industrial Production increased by 2.9% from the previous month in December. The Indices of Industrial Inventories decreased by 0.3% from the previous month in December. The Survey of Production Forecast in Manufacturing expects a decrease of 4.3% in January, and an increase of 5.7% in February.

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

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

Corporate profits are improving. Firms' judgment on current business conditions is improving. The number of corporate bankruptcies is almost flat.

  Corporate profits are improving. During the October-December quarter of 2017, the current profits of the listed companies increased from the previous year both for manufacturers and non-manufacturers. According to the BOJ Tankan (December survey), in fiscal year 2017, sales are expected to increase by 4.3% in the first half of the year, and are expected to increase by 1.9% in the second half from the previous year. Current profits are expected to increase by 22.0% in the first half, and decrease by 9.5% in the second half from the previous year.

  Firms' judgment on current business conditions is improving. 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 (January survey), current business conditions fell, while prospective business conditions rose.

  The number of corporate bankruptcies is almost flat.

The employment situation is improving steadily.

  The employment situation is improving steadily. The total unemployment rate was 2.8% in December, an increase of 0.1 percentage points from the previous month. The labor force and the number of employed persons decreased, while the number of unemployed persons increased.

  The number of employees has been increasing. The number of new job offers has been increasing. The effective ratio of job offers to applicants is increasing. Overtime hours worked in the manufacturing industry have been increasing.

  As for the movement of wages, contractual cash earnings are picking up. 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 moderately. Consumer prices are flat.

  Producer prices are rising moderately.

  Consumer prices, in terms of general, excluding fresh food and energy, are flat.

  According to the Monthly Consumer Confidence Survey(multi-person households), the ratio of households which forecast a rise in prices, was 82.4% in January, an increase of 2.4% points from the previous month.

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

As for stock prices, after declining from the 23,800-yen level to the 21,100-yen level, the Nikkei Stock Average rose to the 22,100-yen level. The yen against the U.S. dollar (inter-bank spot rate) moved in the direction of appreciation from the 110-yen level to the 106-yen level.

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