Monthly Economic ReportExecutive Summary( April 2011 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

Although the Japanese economy was picking up, it shows weakness recently, due to the influence of the Great East Japan Earthquake. Also, it remains in a difficult situation such as a high unemployment rate.

Although exports were showing movements of picking up, a decline is concerned to be caused by the earthquake disaster. Industrial production was picking up, but the earthquake disaster is making production activities stagnant recently.
Corporate profits are improving; however, of concern is the influence of the earthquake disaster. Business investment is picking up.
Firms' judgment on current business conditions shows a sign of caution.
While the employment situation remains severe, movements of an incipient recovery can be seen. However, the influence of the earthquake disaster is concerned.
Although private consumption was showing movements of picking up, some weakness are seen recently, due to the influence of the earthquake disaster.
Recent price developments show that the Japanese economy is in a mild deflationary phase

As for short-term prospects, weakness will continue for a while, due to the influence of the Great East Japan Earthquake. Afterwards, however, as production activities will be recovering, the economy is expected to resume picking up, reflecting improvement in overseas economies and the effects of various policy measures. There are downside risks that could stem from constraints of electric power supply, a slow recovery of the supply chain and the influence of a rise in oil prices. It should also be noted that there is still a risk of the influence of deflation on the economy and a concern about a possible deterioration of the employment situation.

(Policy stance)

The Government, in consideration of the effects of the great East Japan Earthquake, will make every possible effort to stabilize people’s daily lives and economic activity. Therefore, the government will promptly formulate the supplementary fiscal budget to support the affected regions. The Government expects that the Bank of Japan will support the economy by appropriate and flexible measures while working closely with the Government. The Bank of Japan decided to examine the specifics of a funds-supplying operation in order to support financial institutions in disaster areas on April 7th.

Detailed explanations

1. Demand trends such as consumption and investment

Although private consumption was showing movements of picking up, some weakness are seen recently, due to the influence of the earthquake disaster.

Movements by February show that consumer confidence remains almost flat. Real income of employees is 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 Shipments, etc.) increased in February in comparison to January.

As for short-term prospects, attention should be given to the influence of the earthquake disaster.

Business investment is picking up.

Business investment is picking up. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment increased in the July-September quarter of 2010, before increasing in the October-December quarter of 2010 as well. Capital goods Shipments, supply-side statistics, are almost flat.

According to the Bank of Japan short-term business sentiment survey (tankan), planned business investment in fiscal 2011 is expected to increase for the second consecutive year for large manufacturers, and that for large non-manufacturers is expected to decrease for the first time in two years. A sense of excessive capital stock still remains, but is weakening.　The figures for Orders Received for Machinery, a leading indicator, are growing at a slower pace recently.

As for short-term prospects, business investment is expected to continue to be on a pickup trend, while attention should be given to the influence of the earthquake disaster.

Housing construction is picking up.

Housing construction is picking up. Construction of owned houses had picked up, but has been flat recently. Construction of houses for sale and houses for rent is picking up.

As for short-term prospects, attention should be given to the influence of the earthquake disaster.

Public investment has been generally sluggish.

The amount of contracted public works in February 2011 was higher than in the previous year. The amount of public works orders received in February 2011 was higher than in the previous year.

As for short-term prospects, we should closely monitor the execution of related budgets.

Although Exports were showing movements of picking up, there are concerns that a decline will be caused by the earthquake disaster. Imports are showing movements of picking up. The surplus in the trade and services balance has been flat.

Although exports were showing movements of picking up, there are concerns that a decline will be caused by the earthquake disaster. Looking at exports by region in February, exports to Asia are picking up. Exports to the U.S. have been growing at a slower pace recently. Exports to the EU are picking up. As for short-term prospects, exports are expected to pick up along with a recovery of the world economy. However, at present, there are concerns about the influence of a decline in production activity, among others, following the earthquake disaster.

Imports are showing movements of picking up. By region, imports from Asia are showing movements of picking up. Imports from the U.S. have been flat. Imports from EU are showing movements of picking up.

As for the international balance of payments by February, the surplus in the trade account has been flat, as both export and import values have been on the increase. The deficit in the services account has been flat, thus leading the surplus of the trade and services balance to be flat.

2.Corporate activities and employment

Industrial production was picking up, but the earthquake disaster has been making production activities stagnant recently.

As for short-term prospects, production is expected to pickup as production activities have been resumed. However, attention should be given to constraints on electric power supply.

Corporate profits are improving, however, of concern is the influence of the earthquake disaster. Firms’s judgment on current business conditions shows a sign of caution. The number of bankrupt companies is almost flat.

According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the October-December quarter of 2010 increased by 27.3% in comparison with the previous year, thus an increase for the fifth consecutive quarter, against a backdrop of a pickup in sales. By type of industry, profits in the manufacturing industry increased by 20.0%, and profits in the non-manufacturing industry increased by 31.6%. According to the BOJ Tankan, fiscal 2011 sales are expected to post an increase for the second consecutive year, and fiscal 2011 current profits are expected to post an increase for the second consecutive year.

The BOJ Tankan shows that firms’ judgment on current business conditions shows a sign of caution. Both large manufacturers and large non-manufacturers’ judgments on current business conditions improved for the first time in two quarters. Small manufacturers’ judgments on current business conditions improved for the seventh consecutive quarter, and small non-manufacturers’ judgments on current business conditions improved for the first time in two quarters. However, farms are cautious about the immediate future.

The number of bankrupt companies is almost flat.

While the employment situation remains severe, movements of an incipient recovery can be seen. However, the influence of the earthquake disaster is a concern.

The total unemployment rate hovered at a high 4.6% in February, a decrease of 0.3 percentage points from the previous month.

The total unemployment rate of those aged 15 to 24 was 7.8%, a decrease of 0.5 percentage points from the previous month.

The number of new job offers has been increasing. The effective ratio of job offers to applicants has been rising. The number of employees has been showing movements of picking up. Overtime hours worked in the manufacturing industry have been increasing.

As for the movement of wages, contractual cash earnings and the total amount of cash earnings have been moving horizontally.

3.Prices and the financial market

Domestic corporate goods prices have been rising. Consumer prices have been declining at a slower tempo.

Domestic corporate goods prices have been rising.

Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components" (referred to as "core core"), are declining at a slower tempo.

As for short-term prospects, consumer prices (core core) have been expected to remain on a moderate downward trend.

Taken together, these movements show that the Japanese economy is in a mild deflationary phase in that the decline in prices is continuing.

As for stock prices, the Nikkei Stock Average rose from the 9,400-yen level to the 9,700-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 80-yen level to the 85-yen level, and thereafter it is moving at the 84-yen level.

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