Monthly Economic ReportExecutive Summary( Mar 2014 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is recovering at a moderate pace. A last-minute rise in demand before a consumption tax increase is intensifying.

Private consumption is increasing with a last-minute rise in demand before a consumption tax increase.
Business investment is picking up.
Exports are flat.
Industrial production is increasing with a last-minute rise in demand before a consumption tax increase.
Corporate profits are improving. Firms’ judgment on current business conditions is broadly improving.
The employment situation is improving steadily.
Prices are rising moderately.

Concerning short-term prospects, the economy is expected to be on a recovery trend as household income and business investment increase, while exports move toward picking up and the effects of the policies support. However, slowing down of overseas economies is still downside risk of the Japanese economy. Negative reaction after a last-minute rise in demand before a consumption tax increase is expected.

(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 implements economic and fiscal policies based on the "Basic Policies for Economic and Fiscal Management and Reform" , and accelerates and also strengthens implementations of the "Japan Revitalization Strategy". 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 passage of the FY2014 budget and the related bills.
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 increasing with a last-minute rise in demand before a consumption tax increase.

Private consumption is increasing. One of the factors behind this is that although consumer confidence shows weakness, real income of employees is almost flat, and that a last-minute rise in demand before a consumption tax increase is prevailing. 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 1.1% in January from the previous month, while it also increased in terms of the three-month moving average.

Concerning short-term prospects, a decline as a reaction to a last-minute rise in demand before a consumption tax increase is expected. After that, consumption is expected to pick up supported by the improvement of the employment and income situations.

Business investment is picking up.

Business investment is picking up. The Quarterly Financial Statements Statistics of Corporations by Industry (October-December quarter survey), demand-side statistics, shows that business investment decreased in the October-December quarter of 2013 by 0.3% from the previous quarter. By industry, business investment increased for manufacturers by 0.0% from the previous quarter, the first increase after six consecutive quarters of decline since the April - June quarter of 2012. Meanwhile, business investment decreased for non-manufacturers by 0.4% from the previous quarter, though it increased by 5.1% on a year-on-year basis. Capital Goods Shipments, supply-side statistics, increased. According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (December survey), planned business investment for manufactures in fiscal year 2013 is expected to increase for three consecutive years, and that for non-manufacturers is expected to increase for two consecutive years, thus, for all industries, investment is expected to increase for two consecutive years. According to the Business Outlook Survey (January-March quarter survey), planned business investment in fiscal year 2014 is expected to increase for large manufacturers, and decrease for large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, are picking up.

As for short-term prospects, business investment is expected to be on a pickup trend, mainly reflecting the improvement of corporate profits.

Housing construction is growing at a slower pace with a decline in demand as a reaction to a last-minute rise before a consumption tax increase.

Housing construction is growing at a slower pace with a decline in demand as a reaction to a last-minute rise before a consumption tax increase. Construction of owned houses and houses for rent is growing at a slower pace. Construction of houses for sale is flat.

The total number of sales of condominiums in the Tokyo metropolitan area is in a weak tone recently.

As for short-term prospects, housing construction is expected to be in a weak tone for the time being due to a decline in demand as a reaction to a last-minute rise. In addition, the supply-demand situations of construction workers should be closely monitored continuously.

Public investment holds firm.

Public investment holds firm. The amount of contracted public works in February 2014 and the amount of public works orders received in January 2014 increased by 3.7% and 11.2% respectively from the previous year. The amount of public construction completed in December 2013 increased by 20.9% from the previous year, despite a decline of 0.2% from the previous month.

As for short-term prospects, steady movement is expected to be intensified gradually, partly due to a boosting effect by the supplementary budget.

In the general account of the budget plan for FY 2014, the government plans to increase expenses relate to public investment by 12.9% (1.9%, excluding effects of the special accounts reform) from the previous fiscal year. Under the fiscal plans of local governments for FY 2014, local public investment expenses undertaken by local governments on their own funding are planned to increase by 4.2% from the previous fiscal year.

Exports are flat. Imports are increasing recently. The deficits of the balance of goods and services are on an upward trend.

Exports are flat. By region, exports to Asia and the U.S are almost flat. Exports to EU are flat. Exports to others are flat recently. 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 increasing recently. By region, imports from Asia are increasing recently. Imports from the U.S. show movements of picking up. Imports from EU are picking up. As for short-term prospects, imports will be affected by a decline as a reaction to a last-minute rise in demand before a consumption tax increase. After that, imports are expected to be on a trend of modest increase.

The deficits of the balance of goods and services are on an upward trend.

The deficit in the balance of trade in January increased, as import values made a large increase though export values also increased. The deficit in services increased.

2. Corporate activities and employment

Industrial production is increasing with a last-minute rise in demand before a consumption tax increase.

Industrial production is increasing with a last-minute rise in demand before a consumption tax increase. By industry, transport equipment is increasing with a last-minute rise in demand before a consumption tax increase. General-purpose, production and business oriented machinery are increasing. Electronic parts and devices are flat.

As for short-term prospects, production will be affected by a decline as a reaction to a last-minute rise in demand after a consumption tax increase. After that, production is expected be on a trend of increase at a moderate pace, reflecting steady of domestic demand and the improvement of export conditions.

Also, the Survey of Production Forecasts expects an increase of 1.3% in February, and a decrease of 3.2% of March.

Corporate profits are improving. Firms’ judgment on current business conditions is broadly improving. The number of corporate bankruptcies is decreasing at a moderate pace.

Corporate profits are improving. According to the Quarterly Financial Statements Statistics of Corporations by Industry (October -December quarter survey), corporate profits during the October -December quarter of 2013 increased by 26.6% from the previous year and 8.5% from the previous quarter. By size of company, large and small companies saw increases of 31.7% and 15.0% in corporate profits, respectively. According to the BOJ Tankan (December survey), sales in fiscal year 2013 are expected to increase for four consecutive years, and current profits are expected to increase for two consecutive years.

Firms’ judgment on current business conditions is broadly improving. The Tankan (December 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 4 points, that for large non-manufacturers improved by 6 points, that for small manufacturers improved by 10 points, and that for small non-manufacturers improved by 5 points. According to the corporate activity-related DI of the Economy Watchers Survey (February survey), current business conditions fell, with a fall in prospective business conditions mainly due to expected effects of a possible decline in demand after a consumption tax increase as a reaction to a last-minute rise.

The number of corporate bankruptcies is decreasing at a moderate pace.

The employment situation is improving steadily.

The employment situation is improving steadily. The total unemployment rate stood at 3.7% in January, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 6.5%, an increase of 0.4 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons all decreased.

The number of employees is on an upward trend. The effective ratio of job offers to applicants is increasing because of an increase in the number of new job offers. Overtime hours worked in the manufacturing industry are increasing.

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

As for short-term prospects, the employment situation is expected to improve steadily.

3. Prices and the financial market

Prices are rising moderately.

Domestic corporate goods prices are 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"), are rising moderately.

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

As for short-term prospects, consumer prices (core core) are expected to be on a moderate upward trend for the time being.

As for stock prices, after rising from the 14,400-yen level to the 15,000-yen level, the Nikkei Stock Average declined to the 14,600-yen level, and thereafter rose again to the 14,800-yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 102-yen level to the 101-yen level, and thereafter moved in the direction of depreciation to the 103-yen level, before moving again in the direction of appreciation to the 102-yen level.

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