Monthly Economic ReportExecutive Summary( January 2008 )
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 showing a pick up.
- 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 downside risks to 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 on the Japanese economy and overseas economies.
Policy stance
On December 19, the Cabinet approved the "Fiscal 2008 Economic Outlook and Basic Stance for Economic and Fiscal Management", followed by a Cabinet decision on the "Budget for FY 2008 (estimate)" on December 24. In addition, the "Direction and Strategy for the Japanese Economy", which presents new medium-term economic and fiscal policies and perspectives, and the "Fiscal 2008 Economic Outlook and Basic Stance for Economic and Fiscal Management" were decided by the Cabinet on January 18. The draft budget for FY 2008 was also submitted to the Diet on the same day. 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.
Following a surge in the crude oil prices, the Government published a document on December 25 entitled "Concerning Concrete Steps for the Implementation of Emergency Measures for Small and Medium Enterprises, Business Sectors, and the People's Daily Lives to Counteract the Surge in the Crude Oil Price." Furthermore, in accordance with the principle of maintaining fiscal discipline, a supplementary budget, which takes into account issues such as maintaining peoples' safety and security, regional vitalization, and responding to a surge in the crude oil prices, was decided by the Cabinet on December 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
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.), increased in November in comparison to October 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. Construction of owned houses is picking up. 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.
The contracted amount of public works during the October-December quarter of 2007 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.Imports have been flat. The surplus in the trade and services balance has been increasing.
Exports have been increasing. By region, exports to Asia have been increasing as a whole, with exports of transportation equipment increasing. Exports to the U.S. have been gradually increasing. As for short-term prospects, future movement of the U.S. economy 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 and import values have been flat, while the surplus in trade balance has been increasing. The deficit in the services account is decreasing, thus leading to the surplus of the trade and services balance to increase.
2. Corporate activities and employment
Production is increasing moderately.
Industrial production is increasing moderately due to an 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 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 recently while some severe aspects remain.
The total unemployment rate, which seemed to have been decreasing earlier, has stopped improving in recent times.
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 on a decreasing trend, but increased in November. 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 been flat 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 been flat.
As for short-term prospects, consumer prices (core core) are expected to remain broadly 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 15,000 yen level to the 15,600 yen level, the Nikkei Stock Average dropped to the 13,500 yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 113 yen level to the 114 yen level, and is thereafter moving at the 106 yen level.