Monthly Economic ReportExecutive Summary( December 2008 )
(Assessment of the current state of the Japanese economy)
The economy is worsening.
- * Exports are decreasing. Industrial production is decreasing substantially.
- * Corporate profits are falling substantially and business investment is decreasing.
- * The employment situation is getting worse rapidly.
- * While private consumption is almost flat, some weak movements are seen lately.
As for short-term prospects, while the economy is likely to continue worsening for the time being, there is fear that the employment situation is worsening further due to the rapid reduction of production. Moreover, attention should be given to the risks that the economy would become severer due to the worsening global financial crisis, concerns over further slowdown in overseas economies and effects of large fluctuations in stock and foreign exchange markets.
(Policy stance)
The Government published "Economic Policy Package: Emergency Measures for the Defense of Livelihoods" on December 19th, in addition to "Immediate Policy Package to Safeguard People's Daily Lives".
Reform will be accelerated and deepened based on the "Economic and Fiscal Reform 2009" (Basic Policies). The government decided the "Basic Principles of FY 2009 Budget Formulation" on December 3. The Government approved the "Fiscal 2009 Economic Outlook and Basic Stance for Economic and Fiscal Management" on December 19th.
In view of domestic and external economic and financial situation, the Government and the Bank of Japan will conduct policies by sharing basic perspectives on macroeconomic management indicated in the above mentioned Basic Policies. On December 19th, the Bank of Japan decided to lower the Bank's target for the uncollateralized overnight call rate by 20 basis points and encourage it to remain at around 0.1%. And as well as the measures of purchasing the long-term national bond, the Bank of Japan decided to take measures for the facilitation of the corporate finance.
Detailed explanations
1.Demand trends such as consumption and investment
While private consumption is almost flat, some weak movements are seen lately.
While private consumption is almost flat, some weak movements are seen lately. Consumer confidence has been deteriorating, and income has been weak. 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.) remained almost flat, but decreased in October in comparison to September.
As for short-term prospects, we need to keep a close watch on the situation since stock prices are dropping while income has been weak.
Business investment is decreasing.
Business investment is decreasing. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment decreased both in the April-June quarter of 2008 and the July-September 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, the downward trend of business investment is expected to continue for the time being as corporate profits fall substantially and uncertainty about the economic outlook, shown by factors such as further downside risk of the global economy, is increasing.
Housing construction is in a weak tone.
Housing construction is in a weak tone. Construction of owned houses is almost flat. Construction of houses for rent is in a weak tone. Construction of houses for sale is decreasing.
As for short-term prospects, we should closely monitor the fact that the employment situation is getting worse rapidly, income has been weak and condominium stock are at a high level.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
The amount of contracted public works during the July-September quarter of 2008 was higher than in 2007; whereas public works orders received was lower than in 2007. Public works orders received in October of 2008 were higher than the last year's level. However, the contracted amount of public works in November was lower than the last year's level.
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 are decreasing. Imports are in a weak tone. The deficits of the trade and services accounts are decreasing.
Exports are decreasing. By region, exports to Asia have been decreasing. Exports to the U.S. are decreasing as a whole, as exports of transport machinery have decreased. Exports to the EU have been flat. As for short-term prospects, amid further global economic slowdown, the decreasing trends are likely to continue for the time being.
Imports are in a weak tone. By region, imports from Asia have been gradually decreasing. Imports from the U.S. have been flat. Imports from the EU have been flat.
As for the international balance of payments, the surplus in the trade account has increased as export value has decreased and import value has decreased. The deficit in the services account has been flat, thus leading the deficits of the trade and services balance to decrease.
2.Corporate activities and employment
Industrial Production is decreasing substantially.
Industrial production is decreasing substantially due to the decrease in business investments and exports.
As for short-term prospects, the sharp decrease is likely to continue for the time being, since demand is decreasing and the inventory ratio is increasing. Also, the Manufacturing Industry Projection Survey expects a decrease both in November and December.
Corporate profits are falling substantially. Firms' judgment on current business conditions is deteriorating substantially. The number of bankrupt companies is increasing.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits (excluding financial holding companies) during the July-September quarter of 2008 fell by 22.5% in comparison with the previous year, thus posting a decline for the fifth consecutive quarter, due to the fact that the amount of sales decreased. By type of industry, profits of the manufacturing industry decreased by 27.6% and those of the non-manufacturing industry decreased by 18.7%. 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 is deteriorating substantially. Large manufacturers' judgment on current business conditions deteriorated for the fifth consecutive quarter, while that of large non-manufacturers deteriorated for the sixth consecutive quarter. Small manufacturers' judgment on current business conditions deteriorated for the fourth consecutive quarter; whereas that of small non-manufacturers deteriorated for the seventh quarter.
The number of bankrupt companies is increasing.
The employment situation is getting worse rapidly.
The employment situation is getting worse rapidly.
The total unemployment rate, which seems to have been increasing, has decreased by 0.3 % from the previous month to 3.7 % in October.
The number of new job offers has been decreasing. The effective ratio of job offers to applicants has been declining substantially. The number of employees has been moving horizontally. Overtime hours worked in the manufacturing industry have been decreasing. Firms' judgment on current employees conditions showed that labor excess has increased substantially, particularly in manufacturing industry in December.
As for the movement of wages, contractual cash earnings have been moving horizontally. The total amount of cash earnings has been weak.
3.Prices and the financial market
Domestic corporate goods prices have declined. The trend of Consumer prices has been flat though prices of petroleum products have declined.
Domestic corporate goods prices have declined.
Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components" (referred to as "core core"), have been flat. As for short-term prospects, consumer prices (core core) are expected to remain broadly flat.
As for stock prices, after declining from the 8,300 yen level to the 7,800 yen level, the Nikkei Stock Average increased to the 8,700 yen level and is thereafter moving at the 8,600 yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 96 yen level to the 87 yen level.