Monthly Economic ReportExecutive Summary( January 2001 )
JAPANESE ECONOMY
1.OVERVIEW
Although the Japanese economy has not yet got out of the severe situation with meager improvements in the household sector, activities on the whole continue to rise modestly. The strength is seen mainly in the corporate sector, where the autonomous nature of the recovery has become increasingly evident.
Personal consumption remains broadly flat while household income has improved a little. Housing investment increased somewhat in the most recent month, as starts of owner-occupied single houses and those for rent expanded. Business investment continues to rise, led by buoyant outlays by manufacturing firms. Contract of public works, though stagnant, are showing year-on-year increases in recent months. Export volume remains broadly unchanged.
Industrial production continues to rise, but has been slowing down.
Although the slack in the labour market has diminished little as exemplified by the stubbornly high unemployment rate, improvements continue to be seen in the growing number of job offers and in the rising trend of overtime hours worked.
Corporate profits continues to rise markedly. Business confidence continues to improve slightly, with, however, some deterioration foreseen for the immediate future. On the other hand, the number of business failures has stayed somewhat high, with gross debt of failed firms rising.
The Government aims to sustain domestic activities to make sure that the economy establishes an autonomous recovery path, and to make bold reforms of economic structure for the 21st century.
On December 19,2000, the government determined the "Economic Outlook and Basic Policy Stance on Economic Management for FY2001" , and on December 24, the draft budget for fiscal 2001, and on January 6 this year, the Council on Economic and Fiscal Policy made a start.
2. EVALUATION OF INDIVIDUAL INDICATORS
The Japanese economy, in terms of demand, shows that personal consumption remains broadly flat while household income has improved a little. Housing investment increased somewhat in the most recent month, as starts of owner-occupied single houses and those for rent expanded. Business investment continues to rise, led by buoyant outlays by manufacturing firms. Public investment remains generally stagnant, but public works contracts concluded are showing year-on-year increases in recent months. Industrial production continues to rise, but has been slowing down. Corporate profits continue to rise markedly. The improvement in business confidence has slackened as a whole, with some deterioration foreseen for the immediate future. Meanwhile, the number of business failures has stayed somewhat high, with gross debt of failed firms rising.
Although the slack in the labour market has diminished little as exemplified by the stubbornly high unemployment rate, improvements continue to be seen in the growing number of job offers and in the rising trend of overtime hours worked.
Export volume remains broadly unchanged. Imports are rising moderately. As for the balance of international payments, surpluses registered in the trade and service account decreased moderately due to a rise in crude oil prices. The exchange rate of the yen against the U.S. dollar (interbank spot central rate) depreciated to the 117 level in early January, after moving between the 110 and 112 level in December.
Reviewing price movements, domestic wholesale prices remain almost at the same level, while consumer prices are somewhat bearish.
Taking a look at the recent financial situation, short-term interest rates fell after rising in late December and remained almost unchanged in early January. Long-term interest rates fluctuated indecisively in December and early January. Stock prices fell sharply from mid-December to early January, after moving indecisively in early December. The money supply (M2+CD) showed a year-on-year increase of 2.2% in December. Lending by financial institutions remains stagnant. The stringent feeling of corporate finance came to a halt.
3.OVERSEAS ECONOMY
The U.S. economy is slowing down its expansion. The July-September GDP posted an annual growth rate of 2.2%, after increasing 5.6% in the April-June quarter. Personal consumption is increasing, but consumption on durable consumer goods declined for two consecutive months. Capital spending is increasing. Housing investment is slowing down. Industrial production (based on the composite index) is decreasing. Employment is rising, while prices are stable in general. The trade deficit for goods (on the basis of international balance of payments) still remains high. On December 19, the Federal Reserve Board changed its risk perspective of future price stability and economic growth from " heightened inflation pressures" to "economic weakness." On January 3, 2001, the Federal Reserve Board lowered the targeted federal funds rate by 0.5 of a percentage point to 6.00% and the official discount rate by 0.25 of a percentage point to 5.75%. On January 4, the Fed further lowered the discount rate to 5.50%. Long-term interest rates (10-year Treasury bonds) remained on a downward trend in December. Stock prices (Dow Jones industrial average) rose early in December, turned lower later and recovered late in the month.
In Western Europe, the economies of the euro-area countries are expanding steadily. Of the main euro-area countries, the German and French economies are expanding steadily. Industrial production is leveling off in Germany, but is rising in France. Unemployment rates have declined in Germany and France, although they still remain at high levels. The rate of increase in consumer prices is rising slightly in Germany and France due to higher energy prices.
The U.K. economy is expanding steadily. Industrial production is leveling off in the U.K. The unemployment rate in the U.K. has remained at a low level. Prices are stable in the U.K.
Turning to East Asia, the pace of economic growth is slightly slowing in China and prices are rising to some extent. The growth of exports has slackened recently in China. In South Korea, although the economy had continued its expansion, uncertainties about the future course of the economy are spreading, due in part to a slower pace of increase in production. South Korean trade, both exports and imports, are slowing down.
As for movements in the international currency market in December, the U.S. dollar (effective exchange rate) moved generally lower.
As for movements in the international commodity market in December, the CRB commodity futures index rose earlier in the month but fell sharply in the middle of the month and then hovered at around 228 points. The spot crude oil price (North Sea Brent) fell almost uninterruptedly during the month and fell below 23 dollars per barrel for the first time in eight months at the end of the month.