Monthly Economic ReportExecutive Summary( February 2008 )
Assessment of the current state of the Japanese economy
The economy is recovering at a moderate pace recently.
- Corporate profits improvement appears to be pausing and business investment is increasing moderately.
- The employment improvement appears to be pausing while some severe aspects remain.
- Private consumption is almost flat.
- Housing construction remains at a low level while showing a pick up.
- Exports are increasing moderately and industrial production is growing at a slower pace.
As for short-term prospects, moderate recovery is expected to continue while business investment and exports generally increasing. However, attention should be given to downside risks increased by the slowdown of the U.S. economy and the fluctuations in the financial and capital markets mainly caused by the subprime mortgage loan problem, and effects of developments of oil prices.
Policy stance
The Government will promote reforms based on the "Direction and Strategy for the Japanese Economy" and the "Economic and Fiscal Reform (Basic Policies) 2007" in an integrated manner.
The Government will steadily implement the supplementary budget for FY 2007 and other measures.
Following the severe business environment involving small- and medium-sized enterprises, the Government published "Measures for Small- and Medium-sized enterprises towards the end of the fiscal year" on February 20.
In order to ensure sustained economic growth led by private-sector demand while achieving a stable level of inflation rate, the Government and the Bank of Japan conduct policies by sharing basic perspectives on macroeconomic management indicated in the above mentioned Basic Policies.
Detailed explanations
Real GDP (gross domestic product) in the fourth quarter of 2007 grew by 0.9% on a quarterly basis (at an annual rate of 3.7%), posting positive growth for the second consecutive quarter. Nominal GDP grew by 0.3%, posting positive growth for the second consecutive quarter.
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 December in comparison to November 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 remain broadly flat.
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), planned business investment in fiscal 2007 is expected to increase for the fifth consecutive year for industries in total.
As for 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 improvement of corporate profits appears to be pausing.
Housing construction remains at a low level while showing a pick up.
Housing construction remains at a low level while showing a pick up. After picking up, construction of owned houses has been generally flat. Construction of houses for rent and for sale remains at a low level, though it appears to be picking up.
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.
Although the amount of orders received for public works during the October-December quarter of 2007 was higher than in the previous year, the contracted amount of public works during the same period was lower than in the previous year. The contracted amount of public works in February 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 increasing moderately.Imports have been flat. The surplus in the trade and services balance has been decreasing.
Exports have been increasing moderately. By region, exports to Asia have been increasing as a whole, with exports of transportation equipment increasing. Exports to the U.S. have been flat as a whole, with exports of transportation equipment remaining steady and those of electrical equipment weakening. Exports to the EU have been flat. As for short-term prospects, the slowdown of the U.S. economy and other factors should be closely monitored.
Imports have been flat. By region, imports from Asia have been flat as a whole, with imports of machinery equipment moving steadily. Imports from the U.S. have been gradually increasing as a whole, with imports of machinery equipment increasing. Imports from the EU have been gradually decreasing.
As for the international balance of payments, export values have been increasing gradually and import values have been increasing, while the surplus in trade balance has been decreasing. The deficit in the services account has been flat, thus leading to the surplus of the trade and services balance to decrease.
2. Corporate activities and employment
Industrial production is growing at a slower pace.
Industrial production is growing at a slower pace, particularly for information-related producer goods etc.
As for short-term prospects, although downward pressure on production from inventory adjustment is small, export trends should be closely monitored in the future.
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 their first decline in 21 quarters during the July-September quarter of 2007. 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.
The number of bankrupt companies is on a moderate upward trend.
The employment situation appears to be pausing while some severe aspects remain.
The employment improvement appears to be pausing while some severe aspects remain.
The total unemployment rate, which seemed to have been decreasing earlier, has stopped improving and reached 3.8% in December-the same level it was at in the previous month.
The number of new job offers has been decreasing. The effective ratio of job offers to applicants has been declining. The number of employees has been weakening. Overtime hours worked in the manufacturing industry have been increasing.
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. The trend of Consumer prices has only risen slightly though prices particularly for petroleum products have been rising recently.
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 only risen slightly.
As for short-term prospects, consumer prices (core core) are expected to remain on a slight 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 dropping to the 12,500 yen level, the Nikkei Stock Average rose to the 13,800 yen level and is thereafter moving at the 13,300 yen level. Long-term interest rates, after dropping to the low 1.3% level, rose to the high 1.4% level and is thereafter moving at the low 1.4% level.