Monthly Economic ReportExecutive Summary( January 2000 )
JAPANESE ECONOMY
1. OVERVIEW
Recent economic trends in Japan reveal that personal consumption is at a standstill, as income remains sluggish. Housing construction is currently increasing due to buoyant condominium construction as well as an increase in the starts of owner-occupied houses, with the overall level somewhat lower than that for the first half of the fiscal year. Investment in plant and equipment keeps decreasing as a trend, although recovery is observed in some industries. As for public works, new starts are sluggish and 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 recovering.
The employment situation remains severe, with the unemployment ratio staying at a high level, despite increases in overtime hours worked and in job offers.
Company profits keep recovering. Firms' confidence has further improved, although it remains at a low level.
All in all, the economy has not yet got out of the severe situation, as the momentum for recovery in private demand remains weak. However, activities continue to improve moderately, 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" and other measures.
The Government decided on "The Economic Outlook and Basic Policy Stance on Economic Management for FY 2000," which expects a real economic growth rate of about 1.0% for FY 2000, at a cabinet meeting on December the 19th and decided on the draft FY 2000 general account budget of 84.99 trillion yen (a 3.9% increase over the initial FY 1999 budget) at a cabinet meeting on December the 24th.
2. EVALUATION OF INDIVIDUAL INDICATORS
The Japanese economy, in terms of demand, shows that personal consumption is at a standstill, as income remains sluggish. Housing construction is currently increasing due to buoyant condominium construction as well as an increase in the starts of owner-occupied houses, with the overall level somewhat lower than the first half of the fiscal year. Investment in plant and equipment keeps decreasing as a trend, although recovery is observed in some industries. As for public works, new starts are sluggish and the pace of implementation is lower than that a year ago.
With regard to industry, inventory adjustment is broadly finishing, with the inventory / shipment ratio coming down to a level substantially lower than a year ago. Industrial production keeps recovering. Company profits keep recovering. Firms' confidence has further improved, although 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, especially those to Asia, are increasing. Imports are increasing moderately, with those from Asia in an upward trend. As for the balance of international payments, an account surpluses was registered in trade and services, almost the same level. The exchange rate of the yen against the U.S. dollar (interbank spot central rate) depreciated to the 106 level in mid-January after hovering around 102 and 103 in December.
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 in mid-December, rose later on, and then fell again from the end of year to mid-January. Long-term interest rates remained almost unchanged in mid-January after falling slightly in December. Stock prices fluctuated indecisively from December to mid-January. 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 continued to expand, although its future course is uncertain. The July-September real GDP posted an annual growth rate of 5.7% over the previous quarter, after increasing 1.9% in April-June. Personal spending and capital investments are increasing. Housing investment has decreased. Industrial production (based on the composite index) is increasing, and employment is rising. Prices are generally stable. The trade deficit for goods (on an international balance of payments basis) hit an all-time high. Long-term interest rates (30-year Treasury bonds) declined slightly in the first half of December but rose sharply in the second half, ending the month higher. Stock prices (Dow Jones industrial average) continued its upward trend.
In Western Europe, the German economy is improving, while the French economy is expanding, and the British economy is improving. Industrial production is moving sideways in Germany but rising in France and Britain. 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 remains at a low level in Britain. Prices are stable. On December the 13th, the Bank of England raised its base lending rate (repurchase rate) by 0.25 percentage points to 5.75%.
Turning to East Asia, the pace of economic growth is slowing in China, and prices are declining. China's exports are rising sharply. The South Korean economy is expanding and its unemployment rate is falling.
As for movements in the international currency market in December, the U.S. dollar (effective exchange rate) remained almost at the same level.
As for movements in the international commodity market in December, the CRB commodity futures index fell below 202 points in the middle of the month, but later moved within a narrow range at around 205 points. The spot crude oil price (North Sea Brent) moved wildly between 24 dollars and 27 dollars per barrel.