Monthly Economic ReportExecutive Summary( Aug 2012 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is on the way to recovery at a moderate pace partly due to reconstruction demand, while some weak movements are seen recently.
- Industrial production levels off recently. Exports are in a weak tone.
- Corporate profits are picking up. Business investment is picking up slowly.
- Firms' judgment on current business conditions shows a small improvement as a whole, mainly driven by large firms.
- The employment situation shows signs of improvement, although some severe aspects still remain.
- Private consumption is on the increase at a moderate pace.
- Recent price developments indicate that the Japanese economy is in a mild deflationary phase.
Concerning short-term prospects, movements toward economic recovery in the Japanese economy, which would be influenced by the decelerating overseas economy for the time being, are expected to continue due to reconstruction demand to some extent. However, further slowing down of overseas economies and sharp fluctuations in the financial and capital markets under a high degree of uncertainty about the prospects of the Eurozone debt crisis, are downside risks of the Japanese economy. It should also be noted that there is still a risk of constraints of electric power supply and the adverse effects of deflation on the economy.
(Policy stance)
The Government will decisively work together with the Bank of Japan toward the exit from deflation which is the biggest challenge of Japanese economy in the short term, in addition to making its best effort in promoting the reconstruction from the Great Earthquake and in avoiding the slowdown of the economy. The Government will also make an utmost effort to prevent the economy from falling into vicious cycle between yen appreciation and deflation.
Toward defeating deflation, reforming the economic structure predisposed to deflation is essential as well as appropriate macroeconomic policy management. Accordingly, the Government will deploy a broad range of policy measures intensively by FY2013 to mobilize "goods", "people", and "money". The Government also decided "Rebirth of Japan: A Comprehensive Strategy" on July 31st and the “Budgetary Request Guidelines for FY2013” on August 17th.
The Government expects the Bank of Japan to continue powerful monetary easing until the exit from deflation is ensured while working closely with the Government.
Detailed explanations
1. Demand trends such as consumption and investment
Real GDP (gross domestic product) in the April-June quarter of 2012 increased by 0.3% on a quarterly basis (at an annual rate of 1.4%), posting positive growth for the fourth consecutive quarter. Nominal GDP decreased by 0.1% on a quarterly basis, posting negative growth for the first time in two quarters.
Private consumption is on the increase at a moderate pace.
Private consumption is on the increase at a moderate pace, as supported by the effects of policy measures, such as the subsidies program for the purchase of eco-friendly cars. Consumer confidence is almost flat. Real income of employees holds firm. 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.), decreased in June in comparison to May, while it has been flat in terms of the three-month moving average.
As for short-term prospects, although there are some concerns about the prospect of automobile sales, private consumption is expected to show steady movement while employment and income environments remain stable. However, attention should be given to constraints on electric power supply.
Business investment is picking up moderately.
Business investment is picking up moderately. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment increased in the October-December quarter of 2011, before decreasing in the January-March quarter of 2012. Capital goods Shipments, supply-side statistics, have been almost flat.
According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) by the Bank of Japan, planned business investment in the fiscal year 2012 is expected to increase for the second consecutive year for manufacturers, and that for non-manufacturers is expected to increase for the first time in five years, thus that for all industries is expected to increase for the first time in five years. According to the Business Outlook Survey by the Ministry of Finance and the Cabinet Office, planned business investment in the fiscal year 2012 is expected to increase for large manufacturers, and that for large non-manufacturers is expected to decrease. The figures for Orders Received for Machinery, a leading indicator, have been in a weak tone recently.
As for short-term prospects, business investment is expected to continue picking up, partly due to reconstruction demand, as corporate profits are picking up. However, attention should be paid to the influence of the further slowing down of the world economy, etc.
Housing construction has recently been flat.
Housing construction had picked up partly due to reconstruction demand, but has recently been flat. Construction of owned houses and houses for rent is almost flat. Construction of houses for sale is picking up.
The total number of sales of condominiums in the Tokyo metropolitan area is picking up.
As for short-term prospects, housing construction is expected to show steady movement, partly due to reconstruction demand, while the employment and income environments remain stable. However, the supply-demand situations of construction workers should be closely monitored.
Public investment has shown steady performance.
Public investment has shown steady performance.
The amount of contracted public works in July 2012 and the amount of public works orders received in June 2012 were higher than in the previous year.
As for short-term prospects, a strong trend is expected due to the execution of related budgets.
Exports are in a weak tone. Imports have been flat. The deficits of the balance of goods and services have been flat.
Exports are in a weak tone along with a slowing down of the world economy, etc. By region, exports to Asia are in a weak tone. Exports to the U.S. have been flat recently. Exports to the EU have been gradually decreasing. As for short-term prospects, there are concerns that exports are expected to continue being influenced by a slowing down of the world economy, etc. for the time being.
Imports have been flat. By region, imports from Asia have been flat. Imports from the U.S. have been gradually increasing. Imports from the EU have been flat. As for short-term prospects, imports are expected to show steady movement.
The deficit of the balance of goods and services has been flat. The deficit in the balance of trade in June decreased, as export values have been flat and import values have decreased. The deficit in the services trade has been flat.
2. Corporate activities and employment
Industrial production has been leveling off recently.
Industrial production had picked up, but has been leveling off recently, partly due to a weak tone in exports.
As for short-term prospects, production is expected to move horizontally for the time being. However, attention should be given to constraints on electric power supply, the future movement of automobile sales and exports, and so on.
Also, the Survey of Production Forecasts expects an increase in July and a decrease in August.
Corporate profits are picking up. Firms' judgment on current business conditions shows a small improvement mainly driven by large firms. The number of corporate bankruptcies is almost flat.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the January-March quarter of 2012 increased by 9.3% in comparison with the previous year, thus posting an increase for the first time in four quarters, against a backdrop of a pickup in sales. Seasonally adjusted changes from the previous quarter showed an increase of 9.5%. By type of industry, profits in the manufacturing industry increased by 3.6%, and profits in the non-manufacturing industry also increased by 11.8%. According to the BOJ Tankan (June survey), sales in the fiscal year 2012 are expected to increase for the third consecutive year, and current profits in the fiscal year 2012 are expected to increase for the first time in two years.
The Tankan (June survey) also reveals that firms' judgment on current business conditions shows a small improvement by 2 points for all enterprises in all industries. By industry, large manufacturers' judgment on current business conditions increased by 3 points, that for large non-manufacturers increased by 3 points, that for small manufacturers decreased by 2 points, and that for small non-manufacturers increased by 2 points.
The number of corporate bankruptcies is almost flat.
The employment situation shows signs of improvement, although some severe aspects still remain.
The employment situation shows signs of improvement, although some severe aspects still remain.
The total unemployment rate has decreased by 0.1 percentage points from the previous month to 4.3% in June. The total unemployment rate of those aged 15 to 24 was 7.4%, a decrease of 0.9 percentage points from the previous month. The labor force and the number of employed persons have been increasing, while the number of unemployed persons has been decreasing. The number of employees has been on a declining trend recently, but increased in June.
The effective ratio of job offers to applicants has been rising because of an increasing trend in the number of new job offers, etc. Overtime hours worked in the manufacturing industry have been moving horizontally recently.
As for the movement of wages, although contractual cash earnings have been showing steady movement, the total amount of cash earnings has been moving horizontally along with a decrease in special cash earnings.
Firms' judgment on current employment conditions was flat in the whole industry in June, but showed that the excessiveness of the number of employees has increased in the manufacturing industry.
As for short-term prospects, the employment situation is expected to continue showing signs of improvement although it still remains severe.
3. Prices and the financial market
Domestic corporate goods prices have been declining at a moderate pace recently. Consumer prices have been flat recently.
Domestic corporate goods prices have been declining at a moderate pace 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.
As for short-term prospects, consumer prices (core core) are expected to remain flat for the time being.
Reviewing price movements comprehensively, including a decline in consumer prices (core core) on a year-on-year basis, these movements show that the Japanese economy is in a mild deflationary phase, although the tempo of deflation has been slower.
As for stock prices, the Nikkei Stock Average rose from the 8,400-yen level to the 9,100-yen level. The yen against the U.S. dollar is moving within the range from the 78-yen level to the 79-yen level.