Monthly Economic Report (November 2007)


Assessment of the current state of the Japanese economy


  The economy is recovering, while some weaknesses are seen recently.
  As for short-term prospects, the economic recovery is expected to continue supported by the domestic private demand as high corporate profits feed into the household sector. 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'.
  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

  Real GDP (gross domestic product) in the July-September quarter of 2007 grew by 0.6% on a quarterly basis (an annual growth of 2.6%), which was the first positive figure in two quarters. Nominal GDP grew by 0.3% on a quarterly basis, which was the first positive figure in two quarters.



1.Demand trends such as consumption and investment

Private consumption is almost flat.
  Private consumption is almost flat. Consumer confidence has been weak 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 September in comparison to August and has remained almost flat.

  As for short-term prospects, private consumption is expected to increase if the income growth improves based on the tendency of improving employment situation.

Business investment is generally increasing while weak movements have been seen recently.
  Business investment is generally increasing while weak movements have been seen recently. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment by manufacturing industries increased in the April-June quarter of 2007 while that for non-manufacturing industries decreased.

  According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment for businesses of all sizes in all industries is expected to increase in fiscal 2007 for the fifth consecutive year.

  As for short-term prospects, business investment is expected to remain on an increasing trend, as corporate profits have continued to improve.

Housing construction has been decreasing recently.
  Housing construction has been decreasing recently. Construction of owned houses, houses for rent and houses for sale has been decreasing. Though enforcement of the revised Building Standard Law has had an effect for the moment, housing starts are expected to move steadily as long as income environments in households continue to recover along with improvement in the employment situation.

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 those in the previous year.

  With regard to public investment in the October-December quarter, the contracted amount of public works in October declined in comparison to 2006 and is projected to remain the same during the quarter, 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 as export values have increased and import values have been flat. The deficit in the services account has been flat, thus leading to the surplus of the trade services balance has being increasing.


2. Corporate activities and employment

Production is picking up.
  Industrial production is picking up due to the progress of inventory adjustment for information-related producer goods and other factors.

  As for short-term prospects, industrial production is expected to increase moderately, reflecting the increase in business investment etc.

Corporate profits are improving. Firms' judgment on current business conditions shows a sign of caution overall, although that for large manufacturers has been flat. 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 increase of 12.0% in the April-June quarter of 2007, a gain for 20 consecutive quarters, reflecting increased sales etc.

  The BOJ tankan shows that firms' judgment on current business conditions shows a sign of caution overall, although that for large manufacturers has been flat.

  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 has risen by 0.2% from the previous month to 4.0% 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 had been on an increasing trend, but decreased in September. Overtime hours worked in the manufacturing industry are decreasing.

  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 have been flat.

  The rate of year-on-year change in consumer prices 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 or future price movements.

As for stock prices, after rising to the 16,800 yen level, the Nikkei Stock Average dropped to the 14,800 yen level. The yen rate against the U.S. dollar moved in the direction of appreciation from 115 yen level to 108 yen level.