Monthly Economic Report (September 2006)
Assessment of the current state of the Japanese economy
The economy is recovering.
As for short-term prospects, the economic recovery supported by the domestic private demand is expected to continue, as resiliency in the corporate sector is extending into the household sector. On the other hand, attention should be given to an effect which developments of oil prices in particular have on both domestic and overseas economies.
- Corporate profits are improving and business investment is increasing.
- The employment situation is improving on a broader basis, though some severe aspects remain.
- Private consumption is decelerating recently.
- Exports have been flat and industrial production is increasing moderately.
Acceleration and deepening of structural reforms will be pursued based on "Basic Policies for Economic and Fiscal Management and Structural Reform 2006."
In order to secure the trend of price stability during the "Concentrated Consolidation Period" and ensure the sustainable economic growth led by private-sector demand under price stability, the Government and the Bank of Japan will make joint efforts.
1.Demand trends such as consumption and investment
Real GDP (gross domestic product) in the second quarter of 2006 grew by 0.2% on a quarterly basis (at an annual rate of 1.0%), posting positive growth for the sixth consecutive quarter. It was mainly led by the growth of private non-residential investment and private final consumption expenditure, although public fixed capital formation made a negative contribution, Nominal GDP grew by 0.3% on a quarterly basis, posting positive growth for the sixth consecutive quarter.
Private consumption is decelerating recently.
Private consumption is decelerating recently partly due to temporary factors, such as the late end of the rainy season, although income is increasing moderately and consumer confidence is moving horizontally. The Synthetic Consumption Index, which synthesizes demand-side statistics (Family Income and Expenditure Survey, etc.) and supply-side statistics (Indices of Industrial Producer's Shipment, etc.), has increasing at a slower pace in recent months, as it decreased in July from the previous month.
As for short-term prospects, private consumption is expected to remain on an increasing trend, as improvement of the employment situation has led to improvement of the income environment.
Business investment is increasing.
Business investment is increasing thanks to an improvement of corporate profits and increases in demand. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment by both the manufacturing and non-manufacturing industries increased in the second quarter.
Business investment is expected to remain on an increasing trend, as corporate profits have continued to improve.
Housing construction has been generally flat.
Housing construction has been generally flat. Construction of owned houses, houses for rent and houses for sale have been generally flat. Housing starts are expected to move steadily as long as the income environments in households continue to recover along with the improvement in the employment situation.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
Exports have been flat.Imports have been flat. The surplus in the trade and services balance has been decreasing.
Exports have been flat as a whole, as exports of electrical equipment and motor vehicle remained flat. By region, exports to Asia have been increasing moderately as a whole, as exports of electrical equipment have picked up. Exports to the US have remained flat. Exports to the EU have been increasing moderately as a whole as exports of general machinery have been increasing. For short-term prospects, close monitoring is required for the future movement of the U.S. economy.
Imports have been flat. By region, imports from Asia, the US and the EU remained flat.
As for the international balance of payments, the surplus in trade balance has decreased, with both import volume and export volume remaining flat. The deficit in the services account has increased. Due to this, the surplus in the trade and services balance has decreased.
2. Corporate activities and employment
Production is increasing moderately.
Industrial production is increasing moderately as a whole backed by an increase in business investment, etc., despite inventory adjustments are seen in some areas.
As for short-term prospects, industrial production is expected to continue to increase moderately, reflecting the increase in business investment, etc.
Corporate profits are improving. Firms' judgment on current business conditions is moderately improving. The number of bankrupt companiesremains almost flat.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits posted a year-on-year increase of 10.1% in the second quarter of 2006, a gain for 16 consecutive quarters, reflecting increased sales. By type of industry, profits of the manufacturing industry increased by 11.4% and those of the non-manufacturing industry increased by 9.1%, reflecting decreased profits in such industries as petroleum and coal products and services, and increased profits in such industries as information communication electronics, general machinery, information and communications.
The number of bankrupt companies has remained almost flat. The number of corporate failures was approximately 1,100 in July, marking a year-on-year increase but remaining at a low level.
The employment situation is improving on a broader basis, though some severe aspects remain.
The employment situation is improving, though some severe aspects remain. Although the total unemployment rate is at a high level, it is on a downward trend, and wages have been increasing moderately.
The number of new job offers has been on an increasing trend. The effective ratio of job offers to applicants has been rising. The number of employees has been on an increasing trend. Overtime hours worked in the manufacturing industry have been on a rising trend. The proportion of business establishments that implemented employment adjustment such as "overtime restrictions" has remained the same level.
As for the movement of wages, contractual cash earnings have been moving horizontally. The total cash earnings are increasing moderately on the whole. The total special cash earnings from June to July, including bonuses, increased from a year earlier.
3. Prices and the financial market
Domestic corporate goods priceshave been rising due to increased material prices.Consumer prices have been flat.
Domestic corporate goods prices have been rising.
Consumer prices have been flat.
Although the year-on-year change in consumer prices has been positive, the rate of change has been in the neighborhood of zero percent if petroleum products and other special factors are excluded.
However, we need to keep a close watch on the impact of overseas economic movements on future price movements.
Stock prices fell to the 15,700 yen (Nikkei Stock Average) level, after rising from the 15,600 yen level to the 16,300 yen level. Long-term interest rates have dropped to the low 1.7% level from around the 1.9% level.