Monthly Economic ReportExecutive Summary( Jul 2013 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is picking up steadily and shows some movements on the way to recovery.

Exports show movements of picking up. Industrial production is increasing at a moderate pace.
Corporate profits are improving, mainly among manufacturers. Business investment is leveling off and shows some movements of picking up.
Firms’ judgment on current business conditions is improving.
The employment situation is improving, although some severe aspects remain.
Private consumption is picking up.
Recent price developments indicate that the deflation is easing.

Concerning short-term prospects, the recovery is expected to resume as the improvement of the corporate profits leads to increases in household income and business investment, while exports pick up and the effects of the policies develop. However, slowing down of overseas economies is still downside risk of the Japanese economy.

(Policy stance)

The Government will make its utmost efforts to overcome deflation early and achieve the revitalization of the Japanese economy, in addition to accelerate the reconstruction from the Great Earthquake. To this end, the Government decided the "Basic Policies for Economic and Fiscal Management and Reform" as a basic strategy toward "a decade of revitalization" and the "Japan Revitalization Strategy"on June 14th. Hereafter, the Government implements economic and fiscal policies based on the Basic Policies.

The Government expects the Bank of Japan to achieve the price stability target of two percent at the earliest possible time.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption is picking up.

Private consumption is picking up. One of the factors behind this is that with steady movement of real income of employees, consumer confidence is improving. 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 May in comparison to April, while it also increased in terms of the three-month moving average.

Concerning short-term prospects, the recovery is expected to continue to be on a pickup trend, supported by the improvement of the employment and income situations.

Business investment is leveling off and shows some movements of picking up.

Business investment is leveling off and shows some movements of picking up. Statistics of Corporations by Industry, demand-side statistics, show that business investment increased in the October-December quarter of 2012, and decreased in the January-March quarter of 2013. Capital Goods Shipments, supply-side statistics, have been showing further steadiness recently.

According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (June survey) by the Bank of Japan, planned business investment in fiscal year 2013 is expected to increase for the third consecutive year for manufacturers, and that for non-manufacturers is expected to decrease for the first time in two years, thus that for all industries is expected to increase for the second consecutive year. According to the Business Outlook Survey by the Ministry of Finance and the Cabinet Office, planned business investment in fiscal year 2013 is expected to increase both for large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, is picking up recently.

As for short-term prospects, business investment is expected to pick up, reflecting the improvement of corporate profits and confidence, etc.

Housing construction is increasing.

Housing construction is increasing. Construction of owned houses, and houses for rent is increasing. 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 continue to be on an upward trend for the time being, supported by continuously lasting reconstruction demand and the improvement of the employment and income situations. However, the supply-demand situations of construction workers should be closely monitored.

Public investment has shown steady performance.

The amount of contracted public works in June 2013 and the amount of public works orders received in May 2013were higher than in the previous year.

As for short-term prospects, a strong trend is expected due to the execution of related budgets.

Exports show movements of picking up. Imports have been flat. The deficits of the balance of goods and services decreased.

Exports show movements of picking up. By region, Exports to the U.S. are showing movements of picking up. Exports to Asia and EU have been flat. As for short-term prospects, exports are expected to pick up, reflecting the steady overseas economies and the trend of exchange rate depreciation of the yen so far. However, it should be noted that there are risks of a downturn in overseas economies.

Imports have been flat. By region, imports from Asia, the U.S. and EU have been flat. As for short-term prospects, imports are expected to pick up gradually.

The deficits of the balance of goods and services decreased.

The deficit in the balance of trade in May decreased, as export values increased and import values were flat. The deficit in the services decreased.

2. Corporate activities and employment

Industrial production is increasing at a moderate pace.

Industrial production is increasing at a moderate pace. By type of industry, general-purpose, production and business oriented machinery is picking up. Transport equipment, electronic parts and devices have shown a steady undertone.

As for short-term prospects, production is expected to increase at a moderate pace, reflecting the improvement of export conditions and domestic demand in good condition.

Also, the Survey of Production Forecasts expects a decrease in June and an increase in July.

Corporate profits are improving, mainly among manufacturers. Firms’ judgment on current business conditions is improving. The number of corporate bankruptcies has been almost flat.

Corporate profits are improving, mainly among manufacturers. According to the Quarterly Financial Statements Statistics of Corporations by Industry, corporate profits during the January-March quarter of 2013 increased by 6.0% in comparison with the previous year. Seasonally adjusted changes from the previous quarter also showed an increase of 4.9%. By type of industry, profits in the manufacturing industry increased by 28.3% in comparison with the previous year, and profits in the non-manufacturing industry decreased by 3.2%. According to the BOJ Tankan (June survey), sales in fiscal year 2013 are expected to increase for the fourth consecutive year, and current profits are expected to increase for the second consecutive year.

Firms’ judgment on current business conditions is improving. The Tankan (June survey) revealed that firms’ judgment on current business conditions improved by 6 points for all enterprises in all industries. By industry, large manufacturers’ judgment on current business conditions improved by 12 points, that for large non-manufacturers improved by 6 points, that for small manufacturers improved by 5 points, and that for small non-manufacturers improved by 4 points. According to the corporate activity-related DI of the Economy Watchers Survey (June survey), current business conditions decreased for the first time in eight months, and prospective business conditions decreased for the second consecutive month, though they remained at a high level.

The number of corporate bankruptcies has been almost flat.

The employment situation is improving, although some severe aspects remain.

The total unemployment rate stood at 4.1% in May, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 7.1%, a decrease of 1.0 percentage points from the previous month. The labor force and the number of employed persons increased, and the number of unemployed persons decreased. The number of employees has been showing movements of picking up recently.

The effective ratio of job offers to applicants has been rising because of an increase in the number of new job offers, etc. Overtime hours worked in the manufacturing industry have been on an upward trend.

As for the movement of wages, contractual cash earnings have been showing movements of picking up recently. The total amount of cash earnings has been showing steady movement recently.

As for short-term prospects, the employment situation is expected to improve, though some severe aspects remain.

3. Prices and the financial market

Domestic corporate goods prices have been rising at a moderate pace. Consumer prices have been flat recently.

Domestic corporate goods prices have been rising at a moderate pace.

Consumer prices, in terms of "general, excluding fresh food, petroleum products and other specific components" (referred to as "core core"), have been flat recently.

According to the Monthly Consumer Confidence Survey (general households), the ratio of households which forecast a rise in prices increased from the previous month in June.

As for short-term prospects, consumer prices (core core) are expected to remain flat for the time being.

Taken together, these recent movements show that the deflation is easing.

As for stock prices, the Nikkei Stock Average rose from the 12,600-yen level to the 14,500-yen level. The yen against the U.S. dollar moved in the direction of depreciation from the 94-yen level to the 100-yen level.

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