Monthly Economic ReportExecutive Summary( May 2014 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is on a moderate recovery trend, while some weak movements are seen lately due to a reaction after a last-minute rise in demand before a consumption tax increase.
- Private consumption shows weakness lately due to a reaction after a last-minute rise in demand before a consumption tax increase.
- Business investment is increasing.
- 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 lately. However, the judgment about the immediate future is improving.
- The employment situation is improving steadily.
- Consumer prices are rising moderately.
Concerning short-term prospects, although 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 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 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
Real GDP (gross domestic product) in the January - March quarter of 2014 increased by 1.5% on a quarterly basis (at an annual rate of 5.9%), posting positive growth for the sixth consecutive quarter. Nominal GDP increased by 1.2% on a quarterly basis, posting positive growth for the sixth consecutive quarter.
Private consumption shows weakness recently due to a reaction after a last-minute rise in demand before a consumption tax increase.
Private consumption shows weakness recently. The factors behind this include that although real income of employees is almost flat, consumer confidence shows weakness, and that a reaction after a last-minute rise in demand before a consumption tax increase is arising.
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 4.6% in March from the previous month, while it also increased in terms of the three-month moving average.
As for the recent situation, based on results of interviews and other information, new car sales, home appliance sales, sales at department stores, and other sales show weakness due to a reaction after a last-minute rise in demand before a consumption tax increase. However, some sales at department stores and other sales show signs of picking up. Outlays for travel and eating-out show a steady undertone.
Concerning short-term prospects, although weakness would remain for the time being due to a reaction to a last-minute rise in demand before a consumption tax increase, consumption is expected to pick up gradually, supported by the improvement of the employment and income situations.
Business investment is increasing.
Business investment is increasing. The Quarterly Financial Statements Statistics of Corporations by Industry (October - December quarter survey), demand-side statistics, show 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 steadily.
According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (March survey), planned business investment for manufacturers in fiscal year 2014 is expected to increase for four consecutive years, and that for non-manufacturers and all industries is expected to decrease for the first time in three 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 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 April 2014 and the amount of public works orders received in March 2014 increased by 10.0% and 23.5% respectively from the previous year. The amount of public construction completed in March 2014 increased by 13.8% from the previous year, as well as an increase 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 flat. The deficits of the balance of goods and services are almost flat.
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 flat. By region, imports from Asia and the U.S. are flat. Imports from EU have been growing at a slower pace recently. 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, imports are expected to pick up gradually.
The deficits of the balance of goods and services are almost flat.
The deficit in the balance of trade in March increased, as export values decreased and import values increased. The deficit in services is flat. On the other hand, the deficit in the balance of trade on a customs-clearance basis in April decreased, as export values are flat and import values 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 0.3% from the previous month in March. Also, the Survey of Production Forecast in Manufacturing expects a decrease of 1.4% from the previous month in April, and an increase of 0.1% in May.
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 are increasing moderately. 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 lately. However, the judgment about the immediate future is improving. The number of corporate bankruptcies is almost flat.
Corporate profits are improving. According to the BOJ Tankan (March survey), sales in fiscal year 2014 are expected to increase, while current profits are expected to decrease. During the January - March quarter of 2014, the current profits of the listed companies increased from the previous year both for manufacturers and non-manufacturers.
Firms’ judgment on current business conditions shows cautiousness lately. However, the judgment about the immediate future is improving. Various surveys showed that current business conditions largely deteriorated in April. According to the corporate activity-related DI of the Economy Watchers Survey (April survey), current business conditions fell due to a reaction after a last-minute rise in demand before a consumption tax increase, with a rise in prospective business conditions.
The number of corporate bankruptcies is almost flat.
The employment situation is improving steadily.
The employment situation is improving steadily. The total unemployment rate stood at 3.6% in March, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 6.4%, an increase of 0.6 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons all increased.
The number of employees is increasing. The effective ratio of job offers to applicants is increasing because of an upward trend 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. The movement of raising pay scale is prevailing, reflecting shunto.
As for short-term prospects, the employment situation is expected to improve steadily.
3. Prices and the financial market
Domestic corporate goods prices are flat. Consumer prices are rising moderately.
Domestic corporate goods prices are flat 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. Preliminary figures for Tokyo’s wards show an increase of 1.7% from the previous month on the fixed base in April, and an increase of 0.0% on a basis excluding direct effects of a consumption tax increase (estimated by the Cabinet Office).
.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 April.
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, the Nikkei Stock Average declined from the 14,500-yen level to the 14,000-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.