Monthly Economic ReportExecutive Summary( November 1999 )
JAPANESE ECONOMY
1. OVERVIEW
Recent economic trends in Japan reveal that personal consumption is at a standstill, mainly because income remains sluggish. Housing construction keeps the level higher than a year ago, as the starts of condominium construction have increased. Investment in plant and equipment keeps decreasing substantially as a trend. As for public works, new starts are sluggish, although implementation is proceeding. Exports, especially those to Asia, are increasing.
Inventory adjustment has proceeded and the inventory / shipment ratio has come down to a level lower than a year ago. Industrial production is recovering.
The employment situation remains severe, with the unemployment ratio staying at a high level, despite such movements as an increase in overtime hours worked.
Company profits have started to recover. Firms' confidence has further improved, although at a low level.
All in all, the economy has not yet got out of a severe situation, as the momentum for recovery in private demand remains weak. However, activities continue to improve moderately, with the influence of the Asian economic recovery in addition to the effects of various policy measures.
The Government decided on "The Policy Measures for Economic Rebirth" on November the 11th. It aims to realize a smooth baton pass, toward a full-scale recovery, from public to private demand, while wiping out concerns that future weakening in public demand, among other things, may bring about an economic
slowdown, and to establish a new solid foundation for economic development in the 21st century. The government will strongly promote the implementation of this package.
2. EVALUATION OF INDIVIDUAL INDICATORS
The Japanese economy, in terms of demand, shows signs that personal consumption is at a standstill, mainly because income remains sluggish. Housing construction keeps the level higher than a year ago, as the starts of condominium construction have increased. Investment in plant and equipment keeps decreasing substantially as a trend. As for public works, new starts are sluggish, although implementation is proceeding.
With regard to industry, inventory adjustment has proceeded and the inventory / shipment ratio has come down to a level lower than a year ago. Industrial production is showing a trend toward recovery. Company profits have started to recover. Firms' confidence has further improved, although at a low level. The number of bankruptcies has been at the level lower than a year ago due mainly to the expansion of the Credit Guarantee, although it has increased somewhat since early spring.
The employment situation remains severe, with the unemployment ratio staying at a high level, despite such movements as an increase in overtime hours worked.
Exports, especially those to Asia, are increasing. Imports are gradually increasing with those from Asia in a rising trend. 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 U.S. dollar (interbank spot central rate) depreciated from the 105 mark to the 107 mark briefly in early October, but later appreciated slightly and hovered between the 104 and 106 mark to the dollar in early November.
Reviewing price movements, domestic wholesale prices have hit the bottom of their downward trend, and consumer prices remain stable.
Taking a look at the recent financial situation, short-term interest rates rose from October to early November. Long-term interest rates rose in October and then remained almost unchanged in early November. Stock prices rose in early October, fell in the middle of the month and then soared from late October to early November. Money supply (M2+CD) increased 3.5% in October, compared with the level in the same month of the previous year. Further, although the feeling of stringent corporate financing has been mitigated, stagnancy in lending by private financial institutions continues.
3. OVERSEAS ECONOMY
The U.S. economy has continued to expand, although its future course is uncertain. Real GDP posted an annualized growth rate of 4.8% over the previous quarter in the July-September quarter, after posting annual 1.9% growth in the preceding quarter. Personal spending and capital investments are increasing. Housing investment has decreased. Industrial production(total) is increasing. Employment is rising. Prices are generally stable. The trade deficit for goods (on the basis of international balance of payments) is still at a high level. Long-term interest rates (30-year treasury bonds) moved in an upward trend overall in October, except for a decline at the end of the month. Stock prices (Dow Jones industrial average) rose early in October and fell in the middle of the month before ending the month higher.
In Western Europe, the German economy is improving gradually while the French economy is expanding moderately and the economy of the United Kingdom is also improving. Industrial production is moving sideways in Germany but rising in France and the United Kingdom. The unemployment rate remains almost unchanged in Germany, is declining slightly in France, although still at a high level, and remains at a low level in the United Kingdom. Prices are stable. The European Central Bank raised its interest rate (main operation rate) by 0.5 percentage points to 3.0% on November 4 in order to curb possible inflationary pressure such as the accelerated growth rate of M3. On the same day, the Bank of England raised its base lending rate by 0.25 percentage points to 5.5%.
Turning to East Asia, the pace of economic growth is slowing in China, and prices are declining. At the same time, exports have increased significantly. The South Korean economy is recovering rapidly and its unemployment rate is falling.
As for movements in the international currency market in October, the U.S. dollar (effective exchange rate) remained almost unchanged.
As for movements in the international commodity market in October, the CRB commodity futures index fell early in the month, rising sharply in the middle of the month before turning to a downward trend again later. The spot crude oil price (North Sea Brent) moved for the most part within a range of 21 to 23 dollars per barrel.