Monthly Economic ReportExecutive Summary( Nov 2012 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy shows weakness recently due to deceleration of the world economy.
- Exports are in a weak tone while industrial production is decreasing.
- Corporate profits are flattening further, mainly among manufacturers. Business investment is in a weak tone.
- Firms' judgment on current business conditions shows cautiousness, mainly among manufactures.
- The improvement in the employment situation appears to be pausing while some severe aspects still remain.
- Private consumption shows weakness.
- Recent price developments indicate that the Japanese economy is in a mild deflationary phase.
Concerning short-term prospects, weak movements would remain for the time being. After that, the recovery is expected to resume with the improvement of the overseas economy while reconstruction demand lasts continuously. However, a degree of uncertainty about the external economic prospects of the Eurozone and Asia notably China remains high. Under such circumstances, further slowing down of overseas economies and sharp fluctuations in the financial and capital markets are downside risks of the Japanese economy. Also, attention should be paid to the employment and income situations over the future, and the adverse effects of deflation on the economy.
(Policy stance)
The Government will make its best effort in promoting the reconstruction from the Great Earthquake and in avoiding the slowdown of the economy. Furthermore, the Government and the Bank of Japan will work together and make their utmost efforts to overcome deflation as early as possible and to return to a sustainable growth path. In addition, the Government will make maximum effort to prevent the economy from falling into vicious cycle between yen appreciation and deflation, and will implement seamless policy measures.
Toward defeating deflation, reforming the economic structure predisposed to deflation is essential as well as appropriate macroeconomic policy management. Accordingly, the Government will promptly formulate economic policy measures to counter downward risks of the economy and to accelerate measures for realizing economic revitalization. The Government will deploy a broad range of policy measures intensively by FY2013 to dynamically mobilize "goods", "people", and "money".
The Government strongly expects the Bank of Japan to continue powerful monetary easing until the exit from deflation is ensured while working closely with the Government.
The Bank of Japan decided to increase the total size of the Asset Purchase Program and to establish the Framework for the Fund-Provisioning Measure to Stimulate Bank Lending on October 30th.
The Government and the Bank of Japan, for the first time, released an agreement on measures aimed at overcoming deflation on the same day.
Detailed explanations
1. Demand trends such as consumption and investment
Real GDP (gross domestic product) in the July-September quarter of 2012 decreased by 0.9% on a quarterly basis (at an annual rate of 3.5%), posting negative growth for the first time in three quarters. Nominal GDP decreased by 0.9% on a quarterly basis, posting negative growth for the second consecutive quarter.
Private consumption shows weakness.
Private consumption shows weakness. Consumer confidence has been in a weak tone recently. 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 September in comparison to August, while it has been flat in terms of the three-month moving average.
As for short-term prospects, there are concerns that private consumption is expected to be weak for the time being, due to movements of automobile sales, consumer confidence, etc. Moreover, movements of employment and income should be closely monitored.
Business investment is in a weak tone.
Business investment is in a weak tone. The Quarterly Financial Statements Statistics of Corporations by Industry, demand-side statistics, show that business investment decreased for the second consecutive quarter after a substantial increase in the October-December quarter of 2011. In the April-June quarter of 2012, business investment increased for manufacturers, and decreased for non-manufactures. Capital Goods Shipments, supply-side statistics, have decreased.
According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (September survey) 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 both large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, are in a weak tone.
As for short-term prospects, although business investment is expected to be supported by reconstruction demand, etc., it is likely to continue downward pressure that could stem from the slowing down of the world economy, etc.
Housing construction has been flat.
Housing construction has been flat. Construction of owned houses, houses for rent and houses for sale has been almost flat.
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. However, the supply-demand situations of construction workers should be closely monitored for the time being.
Public investment has shown steady performance.
Public investment has shown steady performance.
The amount of contracted public works in October 2012 was higher than in the previous year. The amount of public works orders received in September 2012 was lower 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 almost flat.
Exports are in a weak tone along with a slowing down of the world economy, etc. By region, exports to Asia have been gradually decreasing. Exports to China slightly increased in September in comparison to August; however, exports of automobiles substantially decreased, partly due to the impact of the situation concerning the Senkaku Islands. Exports to the U.S. have been in a weak tone recently. Exports to the EU have been showing signs of leveling off recently. 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. However, they temporarily increased in September due to mineral fuels. By region, imports from Asia have been showing movements of picking up recently. Imports from the U.S. have been gradually increasing. Imports from the EU have been in a weak tone recently. As for short-term prospects, imports are expected to remain broadly flat for the time being.
The deficit of the balance of goods and services has been almost flat. However, the deficit increased in September due to a temporary increase in imports of mineral fuels. The deficit in the balance of trade in September increased, as export values have decreased and import values have increased. The deficit in the services trade has increased.
2. Corporate activities and employment
Industrial production is decreasing.
Industrial production is decreasing, reflecting weak exports and completion of the effects of policy measures by the subsidies program for the purchase of eco-friendly cars, etc.
As for short-term prospects, production is expected to continue being weak for the time being, partly due to weak exports. Furthermore, attention should also be given to inventory accumulation.
Also, the Survey of Production Forecasts expects a decrease in October and an increase in November.
Corporate profits are flattening further, mainly among manufacturers. Firms' judgment on current business conditions shows cautiousness, mainly among manufacturers. The number of corporate bankruptcies has been almost flat.
According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the April-June quarter of 2012 increased by 11.5% in comparison with the previous year, thus posting an increase for the second consecutive quarter, partly due to a technical rebound from a year ago. Seasonally adjusted changes from the previous quarter showed a decrease of 2.5%. By type of industry, profits in the manufacturing industry increased by 2.7% in comparison with the previous year, and profits in the non-manufacturing industry also increased by 16.0%. The settlement during the July-September quarter of 2012 for the listed companies shows that profits have decreased mainly among manufacturers. According to the BOJ Tankan (September 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 (September survey) also reveals that firms' judgment on current business conditions shows a small decrease by 2 points for all enterprises in all industries. By industry, large manufacturers' judgment on current business conditions decreased by 2 points, that for large non-manufacturers was flat, that for small manufacturers decreased by 2 points, and that for small non-manufacturers was flat.
The number of corporate bankruptcies has been almost flat.
The improvement in the employment situation appears to be pausing while some severe aspects still remain.
The improvement in the employment situation appears to be pausing while some severe aspects still remain.
The total unemployment rate stood at 4.2% in September, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 7.0%, a decrease of 1.0 percentage point from the previous month. The labor force, the number of employed persons, and the number of unemployed persons have been increasing. The number of employees has been moving horizontally recently.
The number of new job offers has been decreasing recently. The effective ratio of job offers to applicants has been moving horizontally recently because of a decrease in the number of effective job offers, etc. Overtime hours worked in the manufacturing industry have been decreasing.
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.
As for short-term prospects, the improvement in the employment situation is expected to continue pausing, reflecting still-lingering severity. In addition, attention should be given to spreading movements of employment adjustment in the manufacturing industry.
3. Prices and the financial market
Domestic corporate goods prices have been declining at a slower tempo recently. Consumer prices have declined slightly.
Domestic corporate goods prices have been declining 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 declined slightly.
As for short-term prospects, consumer prices (core core) are expected to remain on a slight downward trend 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 in that the decline in prices is continuing.
As for stock prices, the Nikkei Stock Average is moving within the range from the 8,500-yen level to the 9,000-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 78-yen level to the 80-yen level, and thereafter, it is moving at the 79-yen level.