Monthly Economic ReportExecutive Summary( October 1999 )
JAPANESE ECONOMY
1. OVERVIEW
Recent economic trends in Japan reveal that personal consumption is at a standstill after a gradual recovery. This is 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. The implementation of public works is proceeding, despite the recent weakness in new starts.
Exports are gradually increasing with those to Asia in a rising trend.
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. The unemployment ratio stays at a high level with a large number of involuntary unemployment.
Firm profits have started to recover. Firms' confidence has further improved, although it remains 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, as effects of various policy measures, among other things, have spread through the economy.
The Government will promptly decide on a comprehensive economic policy package, which will be a guideline for future economic management, and on the second supplementary FY 1999 budget. This is because the Government wishes 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.
2. EVALUATION OF INDIVIDUAL INDICATORS
The Japanese economy, in terms of demand, shows that personal consumption is at a standstill after a gradual recovery. This is 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. The implementation of public works is proceeding, despite the recent weakness in new starts.
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 recovering. Firm's profits have started to recover. Firm's 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 in a degree since early spring.
The employment situation remains severe. The unemployment ratio stays at a high level with a large number of involuntary unemployment.
Both exports and imports are gradually increasing, reflecting the trends of exports to and imports from Asia. As for the balance of payments, surpluses registered in the trade and service account balance remain almost at the same level. In September, the exchange rate of the yen against the U.S. dollar (interbank spot central rate) hovered between 109 and 110 yen to the dollar before appreciating to the 104 mark, and then falling back to 106 by the end of the month.
Reviewing the price movements, domestic wholesale prices 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 September. Long-term interest rates declined in September. Stock prices almost leveled off in September. Money supply (M2+CD) increased 3.5% in August, compared with the level of the previous year's same month. 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 1.6% over the previous year in the April-June quarter, after posting a 4.3% year-on-year growth in the preceding quarter. Personal spending and capital investments are increasing. The pace of expansion in housing investment slackened in the second quarter of this year, partly in reaction to a sharp rise in the first quarter. Industrial production (overall) is increasing. Employment decreased due to temporary factors. Prices are stable overall. The trade deficit for goods (on the basis of international balance of payments) is increasing. At its decision-making FOMC meeting on Oct. 5, the Federal Reserve Board announced a shift in its monetary policy stance from "neutral" to "tightening." Long-term interest rates (30-year Treasury bonds) moved almost sideways in September. Stock prices (Dow Jones industrial average) rose early in September but lost ground later, ending the month lower.
In Western Europe, the German economy is improving gradually while the French economy is expanding moderately and the British economy is also improving. Industrial production has turned higher in Germany, remains almost unchanged in France and is rising in Britain. 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 Britain. Prices are stable. The Bank of England raised its base lending rate by 0.25 percentage points to an annual 5.25% on September 8.
Turning to East Asia, the pace of economic growth is slowing in China, and prices are declining. The South Korean economy is recovering rapidly. The unemployment rate, though still at a high level, is falling.
As for movements in the international currency market in September, the U.S. dollar (effective exchange rate) depreciated slightly for the month.
As for movements in the international commodity market in September, the CRB commodity futures index maintained its upward trend early in the month, easing slightly in the middle of the month before rising 208 points toward the end of the month.
The spot crude oil price (North Sea Brent) showed an upward trend early in the month, eased slightly in the middle of the month and rose to 23 dollars per barrel later in the month.