Monthly Economic ReportExecutive Summary( September 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 in a weak tone.
- * 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 stem from growing financial uncertainty in the U.S. and movement of the stock and foreign exchange markets.
(Policy stance)
Reform will be accelerated and deepened based on the "Economic and Fiscal Reform 2008" (Basic Policies). In view of the impact of the global economic slowdown and the world-wide price hikes in raw materials and foods, the Government published the "Comprehensive Immediate Policy Package" on August 29th. Based on this policy package, policies will be implemented continuously and seamlessly in connection with the formulation of the FY 2009 budget. In addition, the "New Economic Growth Strategy" announced on September 19th will be implemented.
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 while closely monitoring domestic and external economic and financial developments.
On September 18th, the Bank of Japan and other central banks decided coordinated measures (introduction of U.S. dollar funds-supplying operations) for further facilitating smooth monetary operations.
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 July in comparison to June , 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 in a weak tone.
Business investment is in a weak tone. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment increased in the January-March quarter of 2008, whereas it decreased in the April-June 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, we should closely monitor the weakening of the employment and income environments, and the high level of condominium stocks.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
Although public works orders received during the April-June quarter of 2008 were higher than in the previous year, the contracted amount of public works was lower than in the previous year. Public works orders received and the contracted amount of public works in July were higher than those of the previous year, whereas the contracted amount of public works in August was lower than that of 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 are in a weak tone. Imports are in a weak tone. The surplus in the trade and services balance has been decreasing.
Exports are in a weak tone. By region, exports to Asia are in a weak tone. Exports to the U.S. are in a weak tone 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 are in a weak tone. By region, imports from Asia have been gradually decreasing as a whole with imports of machinery equipment 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 trade balance has been decreasing, as export value has been flat and import value has increased. 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 business investment and exports are in a weak tone.
As for short-term prospects, close monitoring is required for future movement for inventory, for business investment and for export trends. Also, the Manufacturing Industry Projection Survey expects a decrease in August and an increase in September.
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 (excluding financial holding companies) during the April-June quarter of 2008 fell by 10.5% in comparison with the previous year, thus posting a decline for the fourth consecutive quarter, due to the fact that the amount of sales decreased. By type of industry, profits of the manufacturing industry decreased by 11.7% and those of the non-manufacturing industry decreased by 9.4%. 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 on a moderate upward trend.
The employment situation is in weak tone lately, while some severe aspects remain.
The employment situation is in weak tone lately, while some severe aspects remain.
The total unemployment rate, which seems to have been increasing recently, fell by 0.1 % from the previous month to 4.0 % in July.
The number of new job offers has been on a downward trend. The effective ratio of job offers to applicants has been declining. The number of employees has been moving horizontally. Overtime hours worked in the manufacturing industry have been decreasing. The proportion of business establishments that implemented employment adjustment such as "overtime restrictions" has increased.
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 been flat. Consumer prices have risen moderately.
Domestic corporate goods prices have been flat.
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.
As for stock prices, after rising to the 13,400 yen level, the Nikkei Stock Average dropped to the 11,700 yen level. The yen against the U.S. dollar moved in the direction of depreciation to the 110 yen level, and moved in the direction of appreciation to the 104 yen level. Thereafter, it remains at the 106 yen level.