Monthly Economic ReportExecutive Summary( June 2011 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
Upward movements are observed in the Japanese economy while difficulties continue to prevail, due to the Great East Japan Earthquake.
- Industrial production and exports show some upward movements after they declined due to the earthquake disaster.
- Corporate profits have decelerated and business investment has weakened, due to the earthquake disaster.
- Firms show cautious judgment on current business conditions.
- The employment situation experiences a pause in improvement and remains severe.
- Although private consumption remains weak, it began leveling off.
- Recent price developments show that the Japanese economy is in a mild deflationary phase.
Concerning short-term prospects, reflecting a moderate recovery of overseas economies and the effects of policy measures, the economy is expected to resume picking up as progress is being made in restoring the supply chains and, thereby, production activities are recovering. However, there are downside risks that could stem from constraints of electric power supply, the consequences of the nuclear accident and high oil prices, and further slowing down of overseas economies. It should also be noted that there is still a risk of the adverse effects of deflation on the economy and a concern about a possible deterioration of the employment situation.
(Policy stance)
Based on the “Guideline on Policy Promotion”, the Government will overcome the restriction brought about by the great earthquake in a sequential and steady manner, as well as restoring the growth potential of the Japanese economy. Therefore, the government will work for prompt recovery from the Great Earthquake by promoting measures such as the early implementation of the FY2011 first supplementary budget. The Government expects that the Bank of Japan will support the economy by appropriate and flexible monetary policy management while working closely with the Government.The Bank of Japan decided to establish a new line of credit for the “Fund-Provisioning Measure to Support Strengthening the Foundation for Economic Growth” on June 14th.
Detailed explanations
1. Demand trends such as consumption and investment
Although Private consumption remains weak, it began leveling off.
Although Private consumption remains weak, it began leveling off. As for consumer confidence, a deteriorating trend is being brought under control. 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 April in comparison to March.
As for short-term prospects, private consumption is expected to pick up moderately as supply constraints will be eased. However, attention should be given to the possibility of negative impacts exerted by stagnant production activities on employment and income situations, and constraints on electric power supply in summer.
Business investment has weakened recently, due to the earthquake disaster.
Business investment has weakened recently, due to the earthquake disaster. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment increased in the October-December quarter of 2010, before decreasing in the January-March quarter of 2011. Capital goods Shipments, supply-side statistics, has been in a weak tone, due to the earthquake disaster.
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. According to the Business Outlook Survey, planned business investment in fiscal 2011 is expected to increase for both large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, are growing at a slower pace recently, but are expected to pickup for the immediate future on the back of rehabilitation demand.
As for short-term prospects, business investment is expected to resume picking up, due to the restoration demand from the earthquake disaster.
Housing construction is showing weakness, partly due to the earthquake disaster.
Housing construction is showing weakness, partly due to the earthquake disaster. Construction of owned houses, houses for rent and houses for sale has weakened.
Total sales of condominiums in the Tokyo metropolitan area decreased as a result of selling restraint due to the earthquake disaster, but have been showing movements of picking up recently.
As for short-term prospects, we should closely monitor employment and income environments.
Public investment has been generally sluggish.
Public investment has been generally sluggish.
The amount of contracted public works in May 2011 and the amount of public works orders received in April 2011 were lower than in the previous year.
As for short-term prospects, a boosting effect by the supplementary budget is expected.
Exports declined but now show some upward movements. Imports are showing movements of picking up. The trade and services accounts remain on a deficit trend.
Exports had declined until April due to the earthquake disaster, but, although they are at a low level, they have shown some upward movements since May, as the supply chain has been restored. By region, exports to Asia, the U.S. and the EU seem to be moving in an upward direction. As for short-term prospects, exports are expected to resume picking up, reflecting a recovery of production activities and a moderate recovery of overseas economies. However, it should be noted that there is a risk of further slowing down of overseas economies.
Imports are showing movements of picking up. By region, imports from Asia are in a weak tone. Imports from the U.S. and the EU have been flat. As for short-term prospects, imports will remain on a pickup trend along with an increase in imports of mineral fuels and a recovery of production activities.
The trade account turned negative as export values have decreased and import values have increased. The deficit in the services account has increased, thus the trade and services accounts remain on a deficit trend. As for short-term prospects, the trade and services accounts will continue to be on a deficit trend.
2.Corporate activities and employment
Industrial production declined due to the earthquake disaster but now shows some upward movements.
Although industrial production had declined due to the earthquake disaster, it shows some upward movements as the supply chain has been restored.
As for short-term prospects, production is expected to pickup as the supply chain has recovered. However, attention should be given to constraints on electric power supply.
Also, the Survey of Production Forecasts expects an increase, especially in the transport machinery sector, in both May and June.
Corporate profits have decelerated. Firms’ judgment on current business conditions shows 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 January-March quarter of 2011 increased by 16.2% in comparison with the previous year-an increase for the sixth consecutive quarter-but have decelerated, against a downturn in sales growth. By type of industry, profits in the manufacturing industry decreased by 5.3%, and profits in the non-manufacturing industry increased by 30.1%. 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 also expected to post an increase for the second consecutive year. The quarterly settlement ended in March 2011 shows that corporate profits are weighed down as a result of losses in some companies due to the earthquake disaster.
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.
The number of bankrupt companies is on a moderate upward trend, partly due to the earthquake disaster.
The employment situation experiences a pause in improvement and remains severe, due to the earthquake disaster.
The employment situation experiences a pause in improvement and remains severe, due to the earthquake disaster.
The total unemployment rate hovered at a high 4.7% in April, an increase of 0.1 percentage points from the previous month. The total unemployment rate of those aged 15 to 24 (*) was 9.2%, an increase of 0.4 percentage points from the previous month.
The number of new job offers increased in April, especially in eastern Japan. However, the effective ratio of job offers to applicants has been moving horizontally, because of an increase in new job applicants. The number of employees has decreased recently due to a decrease in employees in the wholesale and retail industries. Overtime hours worked in the manufacturing industry have decreased recently, reflecting stagnation in production. As for short-term prospects, there are concerns about the influence of the earthquake disaster.
As for the movement of wages, the total amount of cash earnings, especially contractual cash earnings, is showing weakness recently due to a decrease in total hours worked. As for short-term prospects, attention should be given to hours worked and the employment situation influenced by the earthquake disaster.
(*: National values excluding Iwate, Miyagi and Fukushima Prefectures)
3.Prices and the financial market
Domestic corporate goods prices have been rising at a slower tempo recently. Consumer prices have been flat month-on-month recently, but continued to decline year-on-year.
Domestic corporate goods prices have been rising at a slower tempo recently.
Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components" (referred to as "core core"), have been flat recently because of a rise in food prices.
As for short-term prospects, consumer prices (core core) are expected to remain broadly flatfor the time being. However, we need to keep a close watch on the influence of the international commodity prices and supply constraints following the earthquake disaster on future price movements.
Consumer prices remain on a declining trend compared with the previous year. 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, after rising from the 9,400-yen level to the 9,700-yen level, the Nikkei Stock Average declined to the 9,300-yen level, and thereafter it is moving at the 9,400-yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 82 yen level to the 79 yen level, and thereafter it is moving at the 80 yen level.