Monthly Economic ReportExecutive Summary( December 2007 )
Assessment of the current state of the Japanese economy
The economy is recovering, while some weaknesses are seen.
- Corporate profit improvement appears to be pausing and business investment is increasing moderately.
- The employment improvement appears to be pausing recently while some severe aspects remain.
- Private consumption is almost flat.
- Housing construction remains at a low level while it has almost stopped decreasing.
- Exports are increasing and industrial production is increasing moderately.
As for short-term prospects, the economic recovery is expected to continue while corporate sector remains solid. On the other hand, attention should be given to effects of the fluctuations in the financial and capital markets mainly caused by the subprime mortgage loan problem and developments of oil prices on the Japanese economy and overseas economies.
Policy stance
Acceleration and deepening of reforms will hereafter be pursued based on the 'Economic and Fiscal Reform 2007'. The Government made a cabinet decision on December 4 of the "Basic Principles of FY 2008 Budget Formulation.".
In order to ensure the sustainable economic growth led by private-sector as well as establish the stability of the level of inflation, the Government and the Bank of Japan will implement the policy management, sharing their basic perspectives on macroeconomic management which are shown on the Basic Policies.
Detailed explanations
1.Demand trends such as consumption and investment
Private consumption is almost flat.
Private consumption is almost flat. Consumer confidence has been deteriorating and income remains almost flat. 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.), decreased in October in comparison to September and has remained almost flat.
As for short-term prospects, since employment improvement appears to be pausing and income remains almost flat, private consumption is expected to move horizontally at present.
Business investment is increasing moderately.
Business investment is increasing moderately. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment by manufacturing industries decreased in the July-September quarter of 2007, whereas that for non-manufacturing industries increased.
According to the Bank of Japan short-term business sentiment survey(tankan), business investment in fiscal 2007 is planned to increase for the fifth consecutive year . Corporations' sense of excess capacity, which indicates the future trend of business investment, is flat.
With regard to short-term prospects, business investment is expected to remain on a moderate upward trend at present. However, we need to keep a close watch on the situation since corporate profit improvement appears to be pausing.
Housing construction remains at a low level while it has almost stopped decreasing.
Housing construction remains at a low level while it has almost stopped decreasing. Construction of owned houses is picking up. Construction of houses for rent and for sale is beginning to stop declining; however, it still remains at a low level.
As for short-term prospects, the impact of the revised Building Standard Law will continue to be felt for the moment.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
The data on public investment in the July-September quarter of 2007 reveal that public works orders, orders received by fifty major companies, and contracted amount of public works were lower than that in the previous year. The contracted amount of public works in October declined as compared to 2006, and as for short-term prospects, public investment is projected to remain the same, considering the budget situation of both the national and local governments.
Exports have been increasing.Imports have been gradually decreasing. The surplus in the trade and services balance has been increasing.
Exports have been increasing. By region, exports to Asia have been increasing. Exports to the U.S. have been gradually increasing as a whole, with exports of transportation equipment increasing. Exports to the EU have been gradually increasing as a whole, with exports of general machinery increasing. As for short-term prospects, future movement of the U.S. economy should be closely monitored.
Imports have been gradually decreasing. By region, imports from Asia have been gradually decreasing. Imports from the U.S. have been flat. Imports from the EU have been gradually decreasing as a whole, with imports of machinery equipment decreasing.
As for the international balance of payments, the surplus in trade balance has been increasing, whereas the deficit in the services account has been decreasing, thus leading to the surplus of the trade services balance to increase continually.
2. Corporate activities and employment
Production is increasing moderately.
Industrial production is increasing moderately due to increase in exports etc.
As for short-term prospects, industrial production is expected to increase moderately as long as exports continue to increase as downward pressure on production from inventory adjustment is small.
Corporate profits improvement appears to be pausing. Firms' judgment on current business conditions shows a sign of caution. The number of bankrupt companies is on a moderate upward trend.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits posted a year-on-year decline of 0.7% in the July-September quarter of 2007, the first decline in 21 quarters.
According to the BOJ Tankan, fiscal 2007 sales are expected to post an increase for the fifth consecutive year, and fiscal 2007 current profits are expected to post an increase for the sixth consecutive year.
The BOJ Tankan shows that firms' judgment of current business conditions shows a sign of caution. Firms' judgment of current business conditions for large manufacturers has deteriorated for the first time in three quarters, while that for large non-manufacturers has deteriorated for the second consecutive quarter. Firms' judgment on current business conditions for small and midium-size manufacturers has improved for the first time in four quarters, whereas that for small and midium-size non-manufacturers has deteriorated for the third consecutive quarter.
The number of bankrupt companies is on a moderate upward trend.
The employment situation appears to be pausing recently while some severe aspects remain.
The total unemployment rate, which seemed to be decreasing earlier, has stopped improving in recent times and was at 4.0% in October, the same level as that in September.
The number of new job offers has been decreasing. The effective ratio of job offers to applicants has been on a downward trend. The number of employees has been weakening. Overtime hours worked in the manufacturing industry have been moving horizontally.
As for the movement of wages, contractual cash earnings have been moving horizontally. The total amount of cash earnings has been weakening.
3. Prices and the financial market
Domestic corporate goods prices have been rising due to increased material prices. Consumer prices have been flat.
Domestic corporate goods prices have been rising due to increased material prices.
Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components", have generally been flat.
However, we need to keep a close watch on the impact of overseas economic movements and crude oil prices on future price movements.
As for stock prices, after rising from the 15,100 yen level to the 16,000 yen level, the Nikkei Stock Average is moving at the 15,500 yen level. Long-term rates, after dropping to the low 1.4% level, rose to the high 1.5% level and thereafter is moving at the mid-1.5% level.