(Provisional translation)
Monthly Economic Report
Executive Summary
( July 2009 )
(Assessment of the current state of the Japanese economy)
The economy is showing movements of picking up recently while in a difficult situation.
* Exports and Industrial production are picking up.
* Corporate profits are decreasing very substantially and business investment is decreasing substantially.
* The employment situation, which is worsening rapidly, is severe.
* Private consumption is showing movements of picking up recently.
As for short-term prospects, with worsening employment situation, the economy is likely to remain severe for the time being. However, the economy is expected to pick up reflecting completion of inventory adjustment, effects of the policy packages and improvement of external economic conditions. On the other hand, there remains fear that the employment situation will worsen further due to extremely low level of production activities. Moreover, attention should be given to the risks that the economy is depressed by the influence of global financial crisis, concerns over slowdown in overseas economies and the influence of fluctuations in the financial and capital markets.
(Policy stance)
The government continues to pursue its top priority of achieving economic recovery in the near term by steadily implementing the "Policy Package to Address Economic Crisis" and other measures. In addition, the "Basic Policies 2009 for Economic and Fiscal Reform: Reassurance, Vitality and Responsibility", decided by the cabinet on June 23rd, provides a roadmap for achieving three goals of reassurance, vitality and responsibility simultaneously. Henceforce, economic and fiscal policies will be conducted based on the Basic Policies 2009.
The government expects the Bank of Japan to conduct appropriate and flexible monetary policy under close contact with the government to facilitate the return of the Japanese economy to a sustainable growth path with price stability.
Detailed explanations
1. Demand trends such as consumption and investment
Private consumption is showing movements of picking up recently.
Private consumption is showing movements of picking up recently due to the effects of the policy packages. As for consumer confidence, a pickup has been seen, though remaining at low levels. Income is decreasing moderately. 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 May in comparison to April.
As for short-term prospects, it is expected that private consumption is supported by the effects of the policy packages while a pickup has been seen in consumer confidence. However, we should closely monitor worsened employment and income situations.
Business investment is decreasing substantially.
Business investment is decreasing substantially. The Quarterly Financial Statements Statistics of Corporations by Industry, which is a demand-side statistic, shows that business investment decreased both in the October-December quarter of 2008 and the January-March quarter of 2009.
According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment in fiscal 2009 is expected to decrease for the second consecutive year for both large manufacturers and large non-manufacturers.
As for short-term prospects, there is concern over further decrease as planned business investment is expected to decrease substantially while corporate profits decrease very substantially and uncertainty about the economic outlook, shown by factors such as downside risk of the global economy, is high.
Housing construction is decreasing substantially.
Housing construction is decreasing substantially. Construction of owned houses is decreasing. Construction of houses for sale and houses for rent is decreasing substantially.
As for short-term prospects, the downward trend is expected to continue for the time being due to worsened employment and income situations.
Public investmenthas shown steady performance.
Public investment has shown steady performance.
The amount of contracted public works and public works orders received during the January-March quarter of 2009 were higher than in 2008. The amount of public works orders received in May 2009 was higher than in 2008.
As for short-term prospects, a strong trend is expected due to the execution of related budgets.
Exports are picking up. Imports are nearing the bottom. The trade and services accounts moved to surplus.
Exports are picking up. By region, exports to Asia are increasing. Both exports to the U.S. and the EU have stopped decreasing. As for short-term prospects, it is expected that exports are continuously picking up for the time being due to worldwide inventory adjustment progresses and signs of economic recovery in Asia, etc.
Imports are nearing the bottom. By region, imports from Asia are picking up. Both imports from the U.S. and the EU are decreasing.
As for the international balance of payments, after the trade account moved to surplus, the surplus has been increasing while export values have increased moderately and import values have been flat. The deficit in the services account has been flat, thus the trade and services accounts moved to surplus.
2.Corporate activities and employment
Industrial production is picking up.
Industrial production is picking up since exports are picking up and downward pressure on production from inventory adjustment is decreasing.
As for short-term prospects, production is expected to continue to pick up for the time being, reflecting completion of inventory adjustment and pickup of exports. Also, the Survey of Production Forecast expects an increase both in June and July.
Corporate profits are decreasing very substantially. Firms' judgment on current business conditions continues to be in a difficult situation, but large enterprises' judgement is showing movements of picking up. The number of bankrupt companies has been almost flat.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits (excluding financial holding companies) during the January-March quarter of 2009 decreased by 70.1% in comparison with the previous year, thus posting a decline for the seventh consecutive quarter, due to the fact that the amount of sales decreased. By type of industry, profits of the manufacturing industry decreased by 141.7% and those of the non-manufacturing industry decreased by 24.0%. According to the BOJ Tankan, fiscal 2009 sales are expected to post a decrease for the second consecutive year, and fiscal 2009 current profits are expected to post a decrease for the third consecutive year.
The BOJ Tankan shows that firms' judgment on current business conditions continues to be in a difficult situation, but large enterprises' judgement is showing movements of picking up. Both large manufacturers' and large non-manufacturers' judgments on current business conditions improved for the first time in 10 quarters. Small manufacturers' judgment on current business conditions was flat; whereas that of small non-manufacturers deteriorated for the ninth consecutive quarter.
The number of bankrupt companies has been almost flat.
The employment situation, which is worsening rapidly, is severe.
The employment situation, which is worsening rapidly, is severe.
The total unemployment rate, which has been increasing, has risen by 0.2% from the previous month to 5.2% in May.
The number of new job offers has been decreasing. The effective ratio of job offers to applicants has been further declining. The number of employees has been decreasing substantially. Overtime hours worked in the manufacturing industry have increased, reflecting pickup of the production. Firms' judgment on current employees conditions showed that labor excess has moderately increased.
As for the movement of wages, contractual cash earnings and the total amount of cash earnings are decreasing.
3.Prices and the financial market
Domestic corporate goods prices have declined moderately. Consumer prices have declined moderately.
Domestic corporate goods prices have declined moderately.
Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components" (referred to as "core core"), have declined moderately. As for short-term prospects, consumer prices (core core) are expected to remain on a moderate downward trend.
As for stock prices, after rising from the 9,700 yen level to the 9,900 yen level, the Nikkei Stock Average decreased to the 9,200 yen level. The yen against the U.S. dollar is moving in the direction of depreciation from the 95 yen level to the 96 yen level, and thereafter it is moving in the direction of appreciation to the 93 yen level.