Monthly Economic ReportExecutive Summary( February 2000 )
JAPANESE ECONOMY
1. OVERVIEW
Recent economic trends in Japan reveal that personal consumption is at a standstill, as income remains sluggish, and it showed a decline at the end of last year due to a decrease in the bonus payments. The level of housing construction has become somewhat lower due to a decrease in the starts of condominiums, which had been buoyant recently. Recovery in investment in plant and equipment is observed in some industries, although investment in plant and equipment as a whole is still in a decreasing trend.
As for public works, new starts have recently increased due to the effects of the second supplementary budget, etc., although the pace of implementation is lower than it was a year ago. Exports, especially those to Asia, are increasing.
Inventory adjustment is nearing its end, with the inventory/shipment ratio coming down to a level substantially lower than what it was a year ago. Industrial production keeps gradually increasing.
The employment situation remains severe, with the unemployment ratio staying at a high level, despite increases in overtime hours worked and in job offers.
Corporate profits keep recovering. Corporate confidence has further improved, although it remains at a low level.
The Japanese economy has not yet got out of the severe situation, as the momentum for recovery in private demand remains weak. The demand was relatively sluggish at the end of last year. However, activities continue to improve moderately, as is seen in positive movements in corporate activities, through the influence of various policy measures and of the Asian economic recovery.
The Government aims to realize a smooth baton pass, toward a full-scale recovery, from public to private demand and to establish a new solid foundation for economic development in the 21st century. From this viewpoint, the government will strongly promote measures, especially those in "The Policy Measures for Economic Rebirth."
The Government decided on the "Economic Outlook and Basic Policy Stance on Economic Management for FY2000," which expects a real economic growth rate of about 1.0% for FY2000, on January the 28th and submitted, on the same day, "The Draft FY2000 General Account Budget" of 84.99 trillion yen (3.8% increase over the initial FY1999 budget) to the Diet.
2. EVALUATION OF INDIVIDUAL INDICATORS
The Japanese economy, in terms of demand, shows that personal consumption is at a standstill, as income remains sluggish, and it showed a decline at the end of last year due to a decrease in the bonus payments. The level of housing construction has become somewhat lower due to a decrease in the starts of condominiums, which had been buoyant recently. Recovery in investment in plant and equipment is observed in some industries, although investment in plant and equipment as a whole is still in a decreasing trend. As for public works, new starts have recently recovered due to the effects of the second supplementary budget, etc., although the pace of implementation is lower than it was a year ago.
With regard to industry, inventory adjustment is nearing its end, with the inventory/shipment ratio coming down to a level substantially lower than what it was a year ago. Industrial production keeps gradually increasing. Corporate profits keep recovering. Corporate confidence has further improved, although it remains at a low level. The number of bankruptcies remains almost at the same level.
The employment situation remains severe, with the unemployment ratio staying at a high level, despite increases in overtime hours worked and in job offers.
Exports and imports, especially those to and from Asia, are increasing. As for the balance of international payments, surpluses registered in the trade and service account are gradually decreasing. The exchange rate of the yen against the U.S. dollar (interbank spot central rate) depreciated to the 105 level in early January, moved sideways later and then depreciated to the 106 level toward the end of the month.
Reviewing price movements, domestic wholesale prices remain almost at the same level, while consumer prices are stable.
Taking a look at the recent financial situation, short-term interest rates dropped slightly in January. Long-term interest rates fell slightly in January after moving sideways in the first and second 10-days of the month. Stock prices rose toward the end of January after falling earlier in the month. The money supply (M2+CDs) increased 2.6% year on year in December. Although the feeling of stringent corporate financing has been mitigated, lending by financial institutions remains stagnant.
3. OVERSEAS ECONOMY
The U.S. economy continues to expand, although its future course is uncertain. The October-December real GDP posted an annual growth rate of 5.8% (preliminary figure) over the previous quarter, after increasing 5.7% in the July-September quarter. Personal spending is increasing. Capital investment is slowing down in reaction to the sharp increase in the July-September quarter. Housing investment has been decreasing. Industrial production (based on the composite index) is increasing. Employment is rising. Prices are generally stable. The trade deficit for goods (on an international balance of payments basis) is widening. On February the 2nd, the Federal Reserve Board raised the official discount rate by 0.25 of a percentage point to 5.25% and the targeted federal funds rate by 0.25 of a percentage point to 5.75% and referred risks mainly toward conditions that may generate heightened inflation pressures in the foreseeable future. Long-term interest rates (30-year Treasury bonds) rose in the first half of January but declined in the second half, ending the month slightly lower. Stock prices (Dow Jones industrial average) plunged early in January but turned higher and kept rising until the middle of the month. In the second half of the month, stock prices remained in a downward trend, ending the month lower.
In Western Europe, the German economy is improving, while the French and the U.K. economies are expanding. Industrial production is moving sideways in Germany but rising in France and the U.K. The unemployment rate has begun to decline slightly in Germany (although it is still at a high level), is declining slightly in France (although still at a high level), and is declining in the U.K. Prices are generally stable in Germany, although import prices are rising, and are stable in France and the U.K. On February the 3rd, the European Central Bank raised its interest rate (main operation rate) by 0.25 of a percentage point to 3.25% to counteract the risk against price stability for the medium term.
Turning to East Asia, the pace of economic growth is slowing in China, and prices are declining. China's exports are rising. The South Korean economy is expanding and its unemployment rate is in a downward trend.
As for the movements in the international currency market in January, the U.S. dollar (effective exchange rate) moved generally higher.
As for movements in the international commodity market in January, the CRB commodity futures index rose sharply to 212 points from early January to mid-January, but was in a moderate downward trend the rest of the month. The spot crude oil price (North Sea Brent) shot up to the level of 27 dollars per barrel in mid-January, but fell slightly later on in the month.