Monthly Economic ReportExecutive Summary( July 2015 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is on a moderate recovery.
- Private consumption is showing signs of picking up.
- Business investment is picking up recently.
- Exports are almost flat.
- Industrial production is flat recently.
- Corporate profits generally show a trend toward improvement. Firms’ judgment on current business conditions is almost flat, while signs of improvement can be seen in some areas.
- The employment situation shows a trend toward improvement.
- Consumer prices are rising moderately.
Concerning short-term prospects, the economy is expected to recover, supported by 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 including slowing down of overseas economies including the Chinese economy.
(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 decided the “Basic Policy on Economic and Fiscal Management and Reform 2015”, the “Japan Revitalization Strategy Revised in 2015”, the “Regulatory Reform Work Plan” and the “Basic Policies for Overcoming Population Decline and Vitalizing Local Economy in Japan 2015”on June 30th. Hereafter, the Government implements economic and fiscal policies based on these Policies.The Government strongly implements the "Initiatives by the "Seiroshi"(Government, Labor, and Corporate Management) for Continuing Virtuous Cycles of the Economy". The Government continuously pursues to expand the economic virtuous cycles which cover local areas, SMEs and small-scale businesses, through directing growing corporate profits towards business investment, wage increase and further improvement in the employment situation by these measures.
The Government swiftly and steadily implements “Immediate Economic Measures for Extending Virtuous Cycles to the Local Economies” and the FY2014 supplementary budget to target at vulnerable parts of the current economy and intend to solve such vulnerabilities as soon as possible.
And the Government also works for smooth and steadily implementation of the FY2015 budget.
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 is showing signs of picking up.
Private consumption is showing signs of picking up. Real gross income of employees is picking up. Consumer sentiment is picking up, although the pace decelerates.
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 0.6% in May from the previous month.
Concerning short-term prospects, consumption is expected to pick up, supported by the improvement trend in the employment and income situations.
Business investment is picking up recently.
Business investment is picking up recently. The Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey), show that business investment increased in the January-March quarter of 2015 by 5.8% from the previous quarter. By industry, business investment increased for manufacturers by 2.3% from the previous quarter, and for non-manufacturers by 7.6%. Capital Goods Shipments, supply-side statistics, are almost flat.
According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (June survey), planned business investment for all industries in fiscal year 2015 is expected to increase for four consecutive years, that for manufacturers is expected to increase for five consecutive years, and that for non-manufacturers is expected to decrease for the first time in four years. According to the Business Outlook Survey (April-June survey), planned business investment in fiscal year 2015 is expected to increase for both large manufacturers and large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, are showing movements of picking up.
As for short-term prospects, business investment is expected to increase, mainly reflecting the improvement of corporate profits.
Housing construction has shown movements of picking up.
Housing construction has shown movements of picking up. Construction of owned houses is generally picking up. Construction of houses for rent is picking up recently. Construction of houses for sale is almost flat. In addition, 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 pick up.
Public investment generally shows weakness.
Public investment generally shows weakness. The amount of contracted public works in June decreased by 1.8% and the amount of public works orders received in May decreased by 28.7% from the previous year. The amount of public construction completed in April increased by 4.9% from the previous year and 2.4% from the previous month.
As for short-term prospects, public investment is expected to continue being weak.
Exports and Imports are almost flat. The deficit in the balance of goods and services is almost flat.
Exports are almost flat. By region, exports to Asia are almost flat. Exports to the U.S. are on a trend of picking up although a downturn in exports of transport machinery can be seen. Exports to the EU are flat. Exports to other regions are almost 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 are flat. Imports from the U.S. show movements of picking up. Imports from the EU are in a weak tone recently. As for short-term prospects, imports are expected to pick up gradually.
The deficit in the balance of goods and services is almost flat.
The deficit in the balance of trade in May decreased, as the decrease in export values was smaller than the decrease in import values. The deficit in services decreased.
2. Corporate activities and employment
Industrial production is flat recently.
Industrial production is flat recently. The Indices of Industrial Production decreased by 2.1% from the previous month in May. The Indices of Industrial Inventories decreased by 0.8% from the previous month in May. Also, the Survey of Production Forecast in Manufacturing expects an increase of 1.5% from the previous month in June, and 0.6% in July.
By industry, transport equipment is in a weak tone recently. General-purpose, production and business oriented machinery are showing movements of picking up. Electronic parts and devices are in a weak tone recently.
As for short-term prospects, production is expected to pick up gradually mainly reflecting inventory adjustment progress and the moderate recovery of overseas economies.
Corporate profits generally show a trend toward improvement. Firms' judgment on current business conditions is almost flat, while signs of improvement can be seen in some areas. The number of corporate bankruptcies is almost flat.
Corporate profits generally show a trend toward improvement. According to the Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey), corporate profits during the January-March quarter of 2015 increased by 0.4% from the previous year and decreased by 6.4% from the previous quarter, while generally show a trend toward improvement. By size of company, large and medium-sized companies saw an increase of 3.5% in corporate profits from the previous year, while small companies saw a decline of 4.4%. According to the BOJ Tankan (June survey), sales in fiscal year 2015 are expected to increase for six consecutive years, and current profits are expected to decrease slightly.
Firms' judgment on current business conditions is almost flat, while signs of improvement can be seen in some areas. The Tankan (June survey) revealed that firms' judgment on current business conditions is flat for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business condition as of September, remained flat from that on current business conditions. Various surveys showed that firms' judgment on current business conditions is almost flat, while signs of improvement can be seen in some areas. According to the corporate activity-related DI of the Economy Watchers Survey (June survey), current and prospective business conditions rose.
The number of corporate bankruptcies is almost flat.
The employment situation shows a trend toward improvement.
The employment situation shows a trend toward improvement. The total unemployment rate stood at 3.3% in May, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 5.5%, 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 almost flat recently. The effective ratio of job offers to applicants is rising. Overtime hours worked in the manufacturing industry are 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 the labor shortage decreased, partly due to the effect of hiring new graduates.
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 rising at a slower tempo recently. Consumer prices are rising moderately.
Producer 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 was 87.3% in June.
As for short-term prospects, consumer prices (core core) are expected to rise moderately for the time being.
As for stock prices, after rising from the 20,200-yen level to the 20,800-yen level, the Nikkei Stock Average declined to the 19,700-yen level, and thereafter rose again to the 20,600- yen level. The yen against the U.S. dollar moved in the direction of appreciation from the 123-yen level to the 120-yen level, and thereafter moved in the direction of depreciation to the 123-yen level.