Monthly Economic ReportExecutive Summary( January 2009 )
(Assessment of the current state of the Japanese economy)
The economy is worsening rapidly.
- * Exports and Industrial production are decreasing very substantially.
- * Corporate profits are falling substantially and business investment is decreasing.
- * The employment situation is getting worse rapidly.
- * Private consumption has been in a weak tone recently.
As for short-term prospects, while the economy is likely to continue worsening for the time being, there is fear that rapid reduction of production will lead to significant employment adjustment. 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 implements economic and fiscal policies by the three-stage consisted of economic measures in the near term, fiscal consolidation in the mid-term, and economic growth through reforms in the mid- to long-term. In the near term to implement economic measures in the first priority, the Government submitted the second supplementary budget for FY2008 to the Diet on January 5th for the implement of the "Economic Policy Package: Measures to Support People's Daily Lives" and "Economic Policy Package: Emergency Measures for the Defense of Livelihoods".
The Government decided the "Formulation of the Mid-term Program for establishing a sustainable social security system and for securing its stable revenue sources" on December 24th. The Government decided the "Medium- to Long-term Fiscal Policy and Economic and Fiscal Outlook for Next Ten Years" and the "Fiscal 2009 Economic Outlook and Basic Stance for Economic and Fiscal Management" on January 19th. The Government also submitted the draft budget for FY2009 to the Diet on the same day.
In view of domestic and external economic and financial situation, the Government expects that the Bank of Japan supports economy through suitable and flexible financial policy by sharing basic perspectives on macroeconomic management.
Detailed explanations
1.Demand trends such as consumption and investment
Private consumption has been in a weak tone recently.
Private consumption has been in a weak tone recently. 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.) decreased in November in comparison to October.
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 decreasing.
Housing construction is decreasing. Construction of owned houses and houses for sale is decreasing. Construction of houses for rent is in a weak tone. Housing construction in November decreased 7.0% from the previous month to an annual rate of 954 thousand units.
As for short-term prospects, the downward trend is expected to continue given 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 October-December quarter of 2008 was lower than in 2007.
As for short-term prospects, we should closely monitor the effect of the supplementary budget.
Exports are decreasing very substantially. Imports are gradually decreasing. The deficits of the trade and services accounts are increasing.
Exports are decreasing very substantially. By region, exports to Asia, the U.S., and the EU have all been decreasing very substantially. As for short-term prospects, amid further global economic slowdown, the decreasing trends are likely to continue for the time being.
Imports are decreasing gradually. By region, imports from Asia have been gradually decreasing. Imports from the U.S. have been flat. Imports from the EU have been gradually decreasing.
As for the international balance of payments, the trade account turned negative, and the deficit in the account thereafter has been increasing as export value has decreased substantially and import value has also decreased. The deficit in the services account has been flat, thus leading the deficits of the trade and services balance to increase.
2.Corporate activities and employment
Industrial production is decreasing very substantially.
Industrial production is decreasing very substantially due to the decrease in business investments and the very substantial decrease in exports.
As for short-term prospects, the substantial decrease is likely to continue for the time being, since demand is decreasing and the inventory ratio is increasing remarkably. Also, the Manufacturing Industry Projection Survey expects a decrease both in December and January.
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 risen by 0.2 % from the previous month to 3.9 % in November.
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 substantially.
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 rising from the 8,500 yen level to the 9,200 yen level, the Nikkei Stock Average decreased to the 8,000 yen level and is thereafter moving at the 8,200 yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 90 yen level to the 93 yen level, and thereafter it moved in the direction of appreciation to the 89 yen level. Thereafter, it is moving at the 90 yen level.