Monthly Economic ReportExecutive Summary( July 1999 )
JAPANESE ECONOMY
1. OVERVIEW
Recent economic trends in Japan reveal that personal consumption is gradually recovering, though not strongly as income remains sluggish. Housing construction is recovering. Investment in plant and equipment keeps decreasing substantially as a trend, despite the fact that there was some increase in the January-March period mainly in small and medium-sized firms. Public works are bullish. Exports are broadly stable.
Inventory adjustment has proceeded and the inventory/shipment ratio has come down to a level lower than a year ago. Industrial production is broadly stable, at a low level, reflecting above final demand conditions.
The employment situation is still severe. The unemployment ratio stays at a high level with an increase in involuntary unemployment.
Although lending by private financial institutions remains stagnant, firms are less concerned about financial liquidity. Firms' confidence is on an improving trend, although at a low level.
All in all, the economy is in a severe situation, as private demand shows little momentum of recovery. However, activities are recently slightly improving, as effects of various policy measures have spread through the economy.
With such severe economic reality, the Government will strongly promote policies including those in "Emergency Economic Package." The Government decided on "Emergency Employment Measures" and "Measures for Enhancing Industrial Competitiveness" on the 11th of June, and accordingly submitted to the Diet the draft supplementary FY1999 budget, which deals with employment measures.
2. EVALUATION ON INDIVIDUAL INDICATORS
The Japanese economy, in terms of demand, shows that personal consumption is gradually recovering, though not strongly as income remains sluggish. Housing construction has come to recover. Investment in plant and equipment keeps decreasing substantially as a basic trend, despite the fact that there was some increase in the January-March period mainly in small and medium-sized firms. Public works are bullish.
Real GDP for the first quarter, 1999 increased 1.9% from the previous quarter (preliminary report; up 7.9% at an annual rate), of which contribution by domestic demand resulted in positive 2.2%.
With regard to industry, inventory adjustment has proceeded, and the inventory/shipment ratio has come down to a level lower than a year ago. In such a situation, industrial production is broadly stable, though at a low level, reflecting above final demand conditions. Signs of improvement are seen in corporate profits. And enterprises' judgment on business conditions, though still in a severe situation, is towards improvement. The number of bankruptcy, which has increased in a degree since early spring, stands, however, at a level substantially lower than a year ago, due mainly to the expansion of the Credit Guarantee.
The employment situation remains severe. The unemployment ratio stays at a high level with an increase in involuntary unemployment.
Exports are broadly stable. Imports are gradually increasing. As for the balance of payments, surpluses registered in the trade and service account balance remain almost at the same level. The exchange rate of the yen against the US dollar (interbank spot central rate) in June rose at the month's beginning from the 121-yen level to the 118-yen level but fell afterwards towards the month's last ten days, being quoted at between the 121- and 122-yen levels.
Reviewing the price movements, domestic wholesale prices recently appear to have hit the bottom of the downward trend, and consumer prices remain stable.
Taking a look at the recent financial situations, short-term interest rates remained at the same level in June. Long-term interest rates rose in June. Stock prices in June assumed a significantly rising market. Money supply (M2+CD) increased 4.1% in May, compared with the level of the previous year's same month. Further, although with the continued stagnancy in lending by private financial institutions, the feeling of stringent corporate financing has been mitigated in a degree.
3. OVERSEAS ECONOMY
Reviewing the economic trends of major nations, the economy of the United States, while a feeling of somewhat opacity over its future is observed, continues to expand. Real GDP, compared at an annual rate with the previous quarters' levels, after increasing 6.0% in the fourth quarter, 1998, resulted in a 4.3% increase in the first quarter, 1999. Personal consumption, along with investment in housing as well as in plant and equipment, increases. Industrial production (total, including mining) increases. Employment, while expanding, however, decreases especially in manufacturing industry due mainly to the decreases in exports. Prices in general remain stable. Deficits registered in the trade balance for goods (on a Balance of Payments basis) stand still high. The Federal Open Market Committee (FOMC) held on June 30 raised the target level for federal funds rate guidance by 0.25 percentage points to 5.00% and altered its financial policy stance from "tightening bias" to "neutral." Long-term interest rates (government bonds for 30-year redemption) rose in general in June. Stock prices (Dow Jones industrial average) showed seesaw-like fluctuations in June but, in comparison of the quotations at the month's end with those at the month's beginning, rose slightly.
In Western Europe, the economy of Germany is decelerating gradually, while revealing, however, certain indications of recovery, and the pace of its economic expansion comes to slow down in France. The economy of the United Kingdom decelerates, with a promising future, however. Industrial production in Germany is on a decrease trend, but its pace comes to be slower. The expansion pace of industrial production gets slower in France, and production decreases in the United Kingdom. The unemployment rates in both Germany and France, though remaining each still at high levels, have declined in a degree, while the rate remains at a low level in the United Kingdom. Prices remain stable.
In East Asia, the Chinese economy expands, but the increase rate in consumption there decelerates, and its exports take on a decrease trend. The Korean economy is towards recovery.
Taking a look at the international financial market in June, the US dollar (effective exchange rates) almost leveled off.
Reviewing the international commodity market in June, the CRB commodity forward indices, after firming in the month's first ten days, took in general on a falling trend but was slightly restored at the month's end. Spot prices for crude oil (North Sea Brent), after showing a rapid rise in the first ten days of June, fluctuated up and down, ranging around US$16/bl, but rose again at the end of the month, recovering to the upper half of the level of US$16/bl.