Monthly Economic ReportExecutive Summary( August 2008 )
(Assessment of the current state of the Japanese economy)
The economy is weakening recently.
- * Exports are in a weak tone. Industrial production is decreasing moderately.
- * Corporate profits are falling and business investment is almost flat.
- * The employment is in a weak tone recently while some severe aspects remain.
- * Private consumption is almost flat.
As for short-term prospects, weak movements are likely to continue for the time being. Attention should be given to further downside risks that could stem from developments of the U.S. economy, the stock and exchange markets, and oil prices.
(Policy stance)
Reform will be accelerated and deepened based on the "Economic and Fiscal Reform 2008" (Basic Policies). In formulating the fiscal year 2009 budget, the Government will maintain reform efforts while achieving fiscal consolidation and addressing key issues.
In view of the impact of recent hikes in crude oil, food, feed, and raw material prices, the Government will steadily implement the policy package, published on June 26th, including the fundamental measures for the fishery industry.
In order to achieve sustained economic growth led by private-sector demand and a stable level of inflation rate, the Government and the Bank of Japan will conduct policies by sharing basic perspectives on macroeconomic management indicated in the above mentioned 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 is weakening. 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.), increased in June in comparison to May, and has remained almost flat as a trend.
As for short-term prospects, we need to keep a close watch on the situation since income is weakening.
Business investment is almost flat.
Business investment is almost flat. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment decreased in the October-December quarter of 2007, whereas it increased in the January-March quarter of 2008.
According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment in fiscal 2008 is expected to increase for the sixth consecutive year for large manufacturers, and that for large non-manufacturers is expected to decrease for the first time in four years.
As for short-term prospects, we need to keep a close watch on the situation since corporate profits are falling.
Housing construction is almost flat.
Housing construction is almost flat. Construction of owned houses and houses for sale has been in a weak tone. Construction of houses for rent is almost flat.
As for short-term prospects, the high level of condominium stocks and rising construction costs should be closely monitored in the future.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
The amount of contracted public works during the April-June quarter of 2008 was lower than in the previous year.
As for short-term prospects, public investment is expected to be generally sluggish in view of the budget situations of the national and local governments.
Exports have been weakening. Imports have been flat. The surplus in the trade and services balance has been decreasing.
Exports have been weakening. By region, exports to Asia have been in a weak tone. Exports to the U.S. have been weakening as a whole, as exports of machinery have decreased. Exports to the EU have been decreasing. As for short-term prospects, the future movement of the U.S. economy and other factors should be closely monitored.
Imports have been flat. By region, imports from Asia have been flat. Imports from the U.S. have been flat as a whole, although machinery equipment has increased. Imports from the EU have been flat.
As for the international balance of payments, the surplus in trade balance has been gradually decreasing, as export value gradually decreased and import value remains flat. The deficit in the services account has been flat, thus leading the surplus of the trade and services balance to decrease.
2.Corporate activities and employment
Production is decreasing moderately.
Industrial production is decreasing moderately, since exports are in a weak tone.
As for short-term prospects, close monitoring is required for future movement of inventory and for export trends.
Corporate profits are falling. Firms' judgment on current business conditions has intensified 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 during the January-March quarter of 2008 fell by 17.5% in comparison with the previous year, thus posting a decline for the third consecutive quarter, due to the fact that the amount of sales decreased.
According to the BOJ Tankan, fiscal 2008 sales are expected to post an increase for the sixth consecutive year, and fiscal 2008 current profits are expected to post a decrease for the second consecutive year.
The BOJ Tankan shows that firms' judgment on current business conditions has intensified a sign of caution.
The number of bankrupt companies is also on a moderate upward trend. The number of bankruptcies was 1,290 in May, and 1,324 in June, marking the total liabilities of 549.7 billion yen in May, and 492.3 billion in June.
The employment rate is weakening recently, while some severe aspects remain.
The employment rate appears to be weakening of late, while some severe aspects remain.
The total unemployment rate, which seems to have been increasing of late, has risen by 0.1 % from the previous month to 4.1 % in June. The sum of the unemployed has increased, while the number of employees has decreased.
The number of new job offers has been on a decreasing trend. The effective ratio of job offers to applicants has been declining. The number of employees continues to be flat recently. Overtime hours worked in the manufacturing industry have been decreasing.
As for the movement of wages, contractual cash earnings have been moving horizontally. The total amount of cash earnings showed a weaker behavior.
3.Prices and the financial market
Domestic corporate goods prices have been rising due to increased material prices. Consumer prices have risen moderately.
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" (referred to as "core core"), have risen moderately. As for short-term prospects, consumer prices (core core) are expected to remain on a moderate upward trend.
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 12,700 yen level to 13,600 yen level, the Nikkei Stock Average dropped to the 12,900 yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 105 yen level to the 104 yen level, and is thereafter moving in the direction of depreciation to the 108 yen level.