Monthly Economic ReportExecutive Summary( May 2008 )
Assessment of the current state of the Japanese economy
The economic recovery appears to be pausing recently.
- Export growth is slowing down and industrial production is flat.
- Corporate profits have been in a weak tone and business investment is almost flat.
- The employment improvement appears to be pausing while some severe aspects remain.
- Private consumption is almost flat.
- Housing construction had almost picked up, but is flat recently.
As for short-term prospects, against the background of gradual resolution of the impact of the revised Building Standard Law, the Japanese economy is expected to recover moderately with the increasing trend of exports. However, attention should be given to downside risks increased by the recession risk in the U.S. economy and the fluctuations in the stock and exchange 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, and is going to carry out "the earlier implementation measures towards the strengthened growth" steadily in view of present economic conditions and a rise of a risk.
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
Real GDP (gross domestic product) in the January-March fourth quarter of 2008 grew by 0.8% on a quarterly basis (at an annual rate of 3.3%), posting positive growth for the third consecutive quarter. Nominal GDP grew by 0.4%, which was the first positive figure in two quarters.
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 March in comparison to February, partly in reaction to the increase due to the additional day of this leap year, but has remained almost flat as a trend.
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 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 increased in the July-September quarter of 2007, whereas it decreased in the October-December quarter of 2007.
According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment in fiscal 2008 is expected to decrease for the first time in six years 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 have been in a weak tone.
Housing construction had almost picked up, but has recently been flat.
Housing construction, had almost picked up, but has recently been flat.
Construction of owned houses is generally flat. Construction of houses for rent had almost picked up, but has recently been flat. Construction of houses for sale has almost picked up.
As for short-term prospects, although the impact of the revised Building Standard Law is expected to converge, the high level of condominium stocks and rising construction costs should be closely monitored in future.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
Although public works orders received during the January-March quarter of 2008 were higher than in the previous year, the contracted amount of public works 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 growth is slowing down.Imports have been flat. The surplus in the trade and services balance has been decreasing.
Export growth is slowing down. By region, exports to Asia have been decelerating as a whole, as exports of electric equipment have weakened. Exports to the U.S. have been flat. 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. Imports from the U.S. have been flat. Imports from the EU have been gradually decreasing as a whole.
As for the international balance of payments, the surplus in trade balance has been decreasing. 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 flat.
Industrial production is flat.
As for short-term prospects, close monitoring is required for future movement of inventory for information-related producer goods and for export trends.
Corporate profits have been in a weak tone. Firms' judgment on current business conditions has been increasing 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 October-December quarter of 2007 fell by 4.5% in comparison with the previous year, thus posting a decline for the second consecutive quarter despite the fact that sales increased. 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 an increase for the first time in two years.
The BOJ Tankan shows that firms' judgment on current business conditions has been increasing 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 but has decreased by 0.1% from the previous month to 3.8% in March.
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 moving horizontally.
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 risen only slightly.
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 only 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 rising from the 13,600 level to the 14,200 yen level, the Nikkei Stock Average is moving at the 14,100 yen level. Long-term interest rates rose from the mid-1.4% level to the 1.7% level, and are thereafter moving at the low 1.6% level.