Monthly Economic ReportExecutive Summary( January 2015 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is on a moderate recovery, while weakness can be seen in private consumption.

Private consumption holds firm, while weakness can be seen in consumer sentiment recently.
Business investment is almost flat.
Exports are flat.
Industrial production is showing movements of picking up.
Corporate profits remain almost flat as a whole, while showing an improvement in large manufacturers. Firms’ judgment on current business conditions is almost flat.
The employment situation shows a trend toward improvement, while an increase in job offers to applicant ratio appears to be pausing.
Consumer prices are flat.

Concerning short-term prospects, although weakness remains for the time being, the economy is expected to recover, supported by the effects of downfall in oil prices and the effects of the policies, while employment and income situation show a trend toward improvement. However, attention should be given to the downside risks of the Japanese economy such as weakening in consumer sentiment and slowing down of overseas economies.

(Policy stance)

The Government will make its utmost efforts to ensure the economy overcomes deflation and achieve economic revitalization and fiscal consolidation simultaneously, in addition to accelerate the reconstruction from the Great Earthquake. To this end, the Government steadily implements “Basic Policies for the Economic and Fiscal Management and Reform 2014” and “Japan Revitalization Strategy Revised in 2014”. And the Government also steadily implements “The Efforts of Government-Labor-Management towards Realizing a Positive Cycle of the Economy”. The Government continuously pursues to expand the economic virtuous cycles which cover local economies, through directing growing corporate profits towards business investment, wage increase and further improvement in the employment situation.
The Government decided “Immediate Economic Measures for Extending Virtuous Cycles to the Local Economies” on December 27th,2014. With this Economic Measures targeting at vulnerable parts the current economy, and intended to solve such vulnerabilities as soon as possible, secure the realization of a virtuous economic cycle and deliver benefits from Abenomics over local economies.
The Government decided the following actions.

“Basic Principles of FY2015 Budget Formulation ” (December 27th , Cabinet decision)
“The FY2013 Supplementary Budget” (January 9th , Cabinet decision)
“Fiscal 2015 Economic Outlook and Basic Stance for Economic and Fiscal Management” (January 12th, Approval of Cabinet)
“The FY2015 Budget” (January 14th , Cabinet decision)

The Government expects the Bank of Japan to achieve the price stability target of two percent in light of economic activity and prices.

Detailed explanations

1. Demand trends such as consumption and investment

Private consumption holds firm, while weakness can be seen in consumer confidence.

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 0.9% in November from the previous month. The factors behind this include steady movements of real gross income of employees. On the other hand, consumer confidence shows signs of bottoming out.

Concerning short-term prospects, consumption is expected to remain steady for the time being, supported by the improvement trend in the employment and income situations. However, attention should be given to concerns that a weakness of consumer confidence continues to put downward pressure on consumption.

Business investment is almost flat.

Business investment is almost flat. The Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey), show that business investment increased in the July-September quarter of 2014 by 3.1% from the previous quarter. By industry, business investment increased for manufacturers by 9.3% from the previous quarter, and also increased for non-manufacturers by 0.1%. Capital Goods Shipments, supply-side statistics, is almost flat.

According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (December 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 increase for three consecutive years. According to the Business Outlook Survey (October-December 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, are almost flat.

As for short-term prospects, business investment is expected to increase, mainly reflecting the improvement of corporate profits to date.

Housing construction has shown a steady undertone.

Housing construction has shown a steady undertone. Construction of owned houses is bottoming out. Construction of houses for rent is picking up. Construction of houses for sale shows a steady undertone. The total number of sales of condominiums in the Tokyo metropolitan area is almost flat.

As for short-term prospects, housing construction is expected to show steady　movement. However, movements of construction costs and 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 December increased by 1.0% and the amount of public works orders received in November decreased by 3.3% from the previous year. The amount of public construction completed in November increased by 3.5% from the previous year, and decreased by 0.4% from the previous month.

As for short-term prospects, public investment is expected to be in a weak tone in consideration of the early execution of national and local budgets.

Exports are flat. Imports are almost flat. The deficits of the balance of goods and services are on a decreasing trend.

Exports are flat. By region, exports to Asia show movements of picking up recently. Exports to the U.S. are almost flat. Exports to EU are in a weak tone. Exports to other regions are flat. As for short-term prospects, exports are expected to pick up gradually, mainly reflecting the moderate recovery of overseas economies. However, it should be noted that there are risks of a downturn in overseas economies.

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

The deficit in the balance of goods and services is on a decreasing trend.

The deficit in the balance of trade in November decreased, as the increase in import values was smaller than the increase in export values partly due to the effects of the drop in oil prices. The deficit in services turned negative.

2. Corporate activities and employment

Industrial production is showing movements of picking up.

Industrial production is showing movements of picking up. The Indices of Industrial Production decreased by 0.5% from the previous month in November. The Indices of Industrial Inventories increased by 1.1% from the previous month in November, an increase for the first time in three months. Also, the Survey of Production Forecast in Manufacturing expects an increase of 3.2% from the previous month in December, and 5.7% in January.

By industry, transport equipment is bottoming out. General-purpose, production and business oriented machinery is flat. Electronic parts and devices are increasing moderately.

As for short-term prospects, although downward pressure from inventory adjustment would remain for the time being, production is expected to pick up.

Corporate profits remain almost flat as a whole, while showing an improvement in large manufacturers. Firms' judgment on current business conditions is almost flat. The number of corporate bankruptcies is decreasing at a moderate pace.

Corporate profits remain almost flat as a whole, while showing an improvement in large manufacturers. According to the Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey), corporate profits during the July-September quarter of 2014 increased by 7.6% from the previous year and by 1.0% from the previous quarter. By size of company, large and small companies saw increases of 8.2% and 5.8% in corporate profits from the previous year, respectively. According to the BOJ Tankan (December survey), sales in fiscal year 2014 are expected to increase, while current profits are expected to decrease.

Firms' judgment on current business conditions is almost flat. The Tankan (December survey) revealed that firms' judgment on current business conditions is almost flat for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business condition as of March, deteriorated from that on current business conditions. Various surveys showed that firms' judgment on current business conditions is almost flat. According to the corporate activity-related DI of the Economy Watchers Survey (December survey), current and prospective business conditions showed an increase.

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

The employment situation shows a trend toward improvement, while an increase in job offers to applicant ratio appears to be pausing.

The employment situation shows a trend toward improvement, while an increase in job offers to applicant ratio appears to be pausing. The total unemployment rate stood at 3.5% in November, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 6.4%, an increase of 0.8 percentage points from the previous month. The labor force, the number of unemployed persons, and the number of employed persons decreased.

The number of employees is almost flat recently. The number of new job offers and the effective ratio of job offers to applicants remain broadly flat. Overtime hours worked in the manufacturing industry show movements of picking up.

As for the movement of wages, contractual cash earnings show steady movement. The total amount of cash earnings is increasing moderately.

As for short-term prospects, the employment situation is expected to continue to show a trend toward improvement.

3. Prices and the financial market

Producer prices are declining moderately. Consumer prices are flat.

Producer prices are declining moderately.

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

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

As for short-term prospects, consumer prices (core core) are expected to remain flat for the time being, partly due to the effects of the drop in oil prices and movement of the yen in the direction of depreciation.

As for stock prices, after declining from the 17,600-yen level to the 16,700-yen level, the Nikkei Stock Average rose to the 17,200-yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 119-yen level to the 117-yen level.

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