Monthly Economic ReportExecutive Summary( July 2014 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is on a moderate recovery trend and a reaction after a last-minute rise in demand before a consumption tax increase is easing.
- Private consumption shows movements of picking up, while some weakness remains.
- Business investment shows some weak movements recently, while it is on the increase.
- Exports are flat.
- Industrial production is in a weak tone recently with a reaction after a last-minute rise in demand before a consumption tax increase.
- Corporate profits are improving. Firms' judgment on current business conditions shows cautiousness, while signs of improvement can be seen.
- The employment situation is improving steadily.
- Consumer prices are rising moderately.
Concerning short-term prospects, although some weakness remains for the time being due to the reaction after a last-minute rise in demand, the economy is expected to recover as the effect gradually lessens, while the effects of the policies support. However, slowing down of overseas economies is still downside risk of the Japanese economy.
(Policy stance)
The Government will make its utmost efforts to ensure the economy overcomes deflation and realize sustainable growth, in addition to accelerate the reconstruction from the Great Earthquake. To this end, the Government decided the "Basic Policies for the Economic and Fiscal Management and Reform 2014", the "Japan Revitalization Strategy Revised in 2014" and the "Regulatory Reform Work Plan" on June 24th. Hereafter, the Government implements economic and fiscal policies based on the Basic Policies. Furthermore, for realizing virtuous cycles of the economy, the Government steadily implements the "Economic Policy Package" including "Economic Measures for Realization of Virtuous Cycles" , and works for early implementation of the FY2014 budget.
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 shows movements of picking up, while some weakness remains.
Private consumption shows movements of picking up, while some weakness remains. The factors behind this include that although real income of employees shows weakness, a reaction after a last-minute rise in demand before a consumption tax increase is easing. In addition, consumer confidence is also picking up under such circumstances.
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 by 1.3% in May from the previous month.
As for the recent situation, based on results of interviews and other information, new car sales are starting to level off. Home appliance sales, sales at department stores and other sales show movements of picking up. Outlays for travel and eating-out show a steady undertone.
Concerning short-term prospects, consumption is expected to pick up supported by the improvement of the employment and income situations.
Business investment shows some weak movements recently, but it is on the increase.
Business investment shows some weak movements recently, but it is on the increase. The Quarterly Financial Statements Statistics of Corporations by Industry (January-March quarter survey), demand-side statistics, show that business investment increased in the January-March quarter of 2014 by 3.1% from the previous quarter. By industry, business investment increased for manufacturers by 5.5% from the previous quarter, and for non-manufacturers by 1.8%. Capital Goods Shipments, supply-side statistics, show some weak movements recently. According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (June survey), planned business investment for all industries in fiscal year 2014 is expected to increase for three consecutive years, that for manufacturers is expected to increase for four consecutive years, and that for non-manufacturers is expected to decrease for the first time in three years.
According to the Business Outlook Survey (April-June quarter survey), planned business investment in fiscal year 2014 is expected to increase for both large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, show some weak movements recently, although they are picking up.
As for short-term prospects, business investment is expected to be on an upward trend, mainly reflecting the improvement of corporate profits to date.
Housing construction is decreasing due to a reaction after a last-minute rise in demand before a consumption tax increase.
Housing construction is decreasing due to a reaction after a last-minute rise in demand before a consumption tax increase. Construction of owned houses and houses for sale is decreasing. Construction of houses for rent is flat. The total number of sales of condominiums in the Tokyo metropolitan area is decreasing.
As for short-term prospects, housing construction is expected to continue the downward trend for the time being due to a reaction after a last-minute rise in demand before a consumption tax increase. In addition, the supply-demand situations of construction workers should be closely monitored continuously.
Public investment shows steady performance.
Public investment shows steady performance. The amount of contracted public works in June 2014 and the amount of public works orders received in May 2014 increased by 14.3% and 5.4% respectively from the previous year. The amount of public construction completed in April 2014 increased by 9.7% from the previous year, despite a decrease of 0.1% from the previous month.
As for short-term prospects, a strong trend is expected due to the execution of related budgets.
Exports are flat. Imports are in a weak tone recently. The deficits of the balance of goods and services are on a decreasing trend.
Exports are flat. By region, exports to Asia, the U.S., EU, and other regions are flat. As for short-term prospects, exports are expected to pick up gradually, mainly reflecting the steady overseas economies. However, it should be noted that there are risks of a downturn in overseas economies.
Imports are in a weak tone recently. By region, imports from Asia are flat. Imports from the U.S. and EU are in a weak tone recently. As for short-term prospects, imports are expected to pick up gradually.
The deficits of the balance of goods and services are on a decreasing trend.
The deficit in the balance of trade in May decreased, as export values slightly increased and import values decreased. The deficit in services decreased.
2. Corporate activities and employment
Industrial production is in a weak tone recently with a reaction after a last-minute rise in demand before a consumption tax increase.
Industrial production is in a weak tone recently with a reaction after a last-minute rise in demand before a consumption tax increase. The Indices of Industrial Production increased by 0.7% from the previous month in May. Also, the Survey of Production Forecast in Manufacturing expects a decrease of 0.7% from the previous month in June, and an increase of 1.5% in July.
By industry, transport equipment is in a weak tone recently with a reaction after a last-minute rise in demand before a consumption tax increase. General-purpose, production and business oriented machinery and electronic parts and devices are flat.
As for short-term prospects, although a reaction after a last-minute rise in demand before a consumption tax increase would remain for the time being, production is expected to pick up gradually.
Corporate profits are improving. Firms’ judgment on current business conditions shows cautiousness, while signs of improvement can be seen. The number of corporate bankruptcies is almost flat.
Corporate profits are improving. According to the Quarterly Financial Statements Statistics of Corporations by Industry (January-March quarter survey), corporate profits during the January-March quarter of 2014 increased by 20.2% from the previous year and 1.1% from the previous quarter. By size of company, large and small companies saw increases of 13.6% and 32.3% in corporate profits from the previous year, respectively. According to the BOJ Tankan (June survey), sales in fiscal year 2014 are expected to increase, while current profits are expected to decrease.
Firms’ judgment on current business conditions shows cautiousness, while signs of improvement can be seen. The Tankan (June survey) revealed that firms’ judgment on current business conditions deteriorated for all enterprises in all industries. That on future business conditions, which indicates the business condition as of September, remained on the same level as that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (June survey), on the other hand, current and prospective business conditions improved.
The number of corporate bankruptcies is almost flat.
The employment situation is improving steadily.
The employment situation is improving steadily. The total unemployment rate has decreased by 0.1 percentage points from the previous month to 3.5% in May. The total unemployment rate of those aged 15 to 24 was 6.3%, an increase of 0.5 percentage points from the previous month. The labor force and the number of employed persons increased, while the number of unemployed persons decreased.
The number of employees is almost flat recently. The number of new job offers is flat, while the effective ratio of job offers to applicants is increasing. Overtime hours worked in the manufacturing industry have been in a weak tone recently.
As for the movement of wages, contractual cash earnings are picking up. The total amount of cash earnings is increasing moderately.
According to the BOJ Tankan (June Survey), firms’ judgment on current employment conditions showed that labor shortage decreased in whole industry, partly due to the effect of hiring new graduates. Firms’ judgment on future employment conditions which indicates the employment conditions as of September, turned to labor shortage in manufacturers, and showed that labor shortage increased in whole industry.
As for short-term prospects, the employment situation is expected to improve steadily.
3. Prices and the financial market
Producer prices are rising moderately recently. Consumer prices are rising moderately.
Producer prices are rising moderately recently on a basis excluding the direct effects of the consumption tax increase.
Consumer prices, in terms of general, excluding fresh food, petroleum products and other specific components (referred to as "core core"), are rising moderately on a basis excluding direct effects of the consumption tax increase.
According to the Monthly Consumer Confidence Survey (general households), the ratio of households which forecast a rise in prices remained at the same level as the previous month in June.
As for short-term prospects, consumer prices (core core) are expected to be on a moderate upward trend for the time being on a basis excluding direct effects of the consumption tax increase.
As for stock prices, after declining from the 15,300-yen level to the 15,000-yen level, the Nikkei Stock Average rose to the 15,300-yen level. The yen against the U.S. dollar is mostly staying at the 101-yen level.