Monthly Economic ReportExecutive Summary( October 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 some areas.
- Private consumption holds firm as a whole.
- Business investment is picking up generally.
- Exports are in a weak tone recently.
- Industrial production is in a weak tone recently.
- Corporate profits are improving. Firms’ judgment on current business conditions is almost flat, while cautiousness 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 toward recovery, supported by the effects of the policies, while employment and income situation show a trend toward improvement. However, there are downside risks of the Japanese economy including slowing down of emerging Asian economies including the Chinese economy as the process of U.S. monetary policy normalization emerges. In addition, attention should be given to the effects of lengthening of fluctuations in the financial and capital markets under such circumstances.
(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 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 Policy for Overcoming Population Decline and Vitalizing Local Economy in Japan 2015”.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 will create an emergency plan that deals with structural issues such as low birth rate and aging population, in order to realize the society promoting dynamic engagement of all citizens.
Considering TPP agreement in principle on October 5th,2015, the Government will also elaborate “TPP Policy Plan”(provisional title) in “TPP Task Force” in order to truly connect TPP to economic revitalization and vitalizing local economies in Japan.
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 as a whole.
Private consumption holds firm as a whole. Real gross income of employees is picking up. Movements of picking up in consumer sentiment appear to be pausing.
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 0.8% in August 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 generally.
Business investment is picking up generally. The Quarterly Financial Statements Statistics of Corporations by Industry (April-June survey) show that business investment decreased in the April-June quarter of 2015 by 2.7% from the previous quarter after increasing in the January-March quarter of 2015 by 6.0%. By industry, business investment increased for manufacturers by 0.4% from the previous quarter, and decreased for non-manufacturers by 4.4%. Capital Goods Shipments, supply-side statistics, are almost flat.
According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (September survey), planned business investment for all industries and that for non-manufacturers in fiscal year 2015 are expected to increase for four consecutive years, and that for manufacturers is expected to increase for five consecutive years. According to the Business Outlook Survey (July-September survey), planned business investment in fiscal year 2015 is expected to increase for large manufacturers, and decrease for large non-manufacturers. The figures for Orders Received for Machinery, a leading indicator, are in a weak tone recently. Planned construction cost is increasing at a moderate pace.
As for short-term prospects, business investment is expected to increase, mainly reflecting the improvement of corporate profits.
Housing construction is picking up.
Housing construction is picking up. Construction of owned houses is almost flat. Construction of houses for rent and houses for sale is picking up. 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 continue to show a trend of picking up.
Public investment generally shows weakness.
Public investment generally shows weakness. The amount of contracted public works in September decreased by 10.9% and the amount of public works orders received in August decreased by 1.5% from the previous year. The amount of public construction completed in July increased by 4.4% from the previous year, and by 1.1% from the previous month.
As for short-term prospects, public investment is expected to continue being weak.
Exports and Imports are in a weak tone recently. The deficit in the balance of goods and services is almost flat.
Exports are in a weak tone recently. By region, exports to Asia, the U.S. and other regions are in a weak tone recently. Exports to the EU 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 in a weak tone recently. By region, imports from Asia are in a weak tone recently. Imports from the U.S. and the 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 almost flat.
The deficit in the balance of trade in August decreased, as import values decreased despite the increase in export values. The balance of services moved into the black.
2. Corporate activities and employment
Industrial production is in a weak tone recently.
Industrial production is in a weak tone recently. The Indices of Industrial Production decreased by 0.5% from the previous month in August. The Indices of Industrial Inventories increased by 0.4% from the previous month in August. The Survey of Production Forecast in Manufacturing expects an increase of 0.1% from the previous month in September, and an increase of 4.4% in October.
By industry, transport equipment is in a weak tone. General-purpose, production and business oriented machinery are also in a weak tone recently. Electronic parts and devices are on a decline recently.
As for short-term prospects, production is expected to pick up gradually mainly reflecting the moderate recovery of overseas economies.
Corporate profits are improving. Firms' judgment on current business conditions is almost flat, while cautiousness can be seen in some areas. The number of corporate bankruptcies is almost flat.
Corporate profits are improving. According to the Quarterly Financial Statements Statistics of Corporations by Industry (April-June survey), corporate profits during the April-June quarter of 2015 increased by 23.8% from the previous year and by 14.8% from the previous quarter. By size of company, large and medium-sized companies saw an increase of 23.2% in corporate profits from the previous year, and small companies saw an increase of 26.0%. According to the BOJ Tankan (September survey), sales in fiscal year 2015 are expected to increase for six consecutive years, and current profits are expected to increase for four consecutive years.
Firms' judgment on current business conditions is almost flat, while cautiousness can be seen in some areas. The Tankan (September survey) revealed that firms' judgment on current business conditions is almost flat for all enterprises in all industries, while that for large manufacturers, etc. deteriorated. Firms' judgment on future business conditions, which indicates the business condition as of December, deteriorated from that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (September survey), current and prospective business conditions fell.
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 increased by 0.1 percentage points from the previous month to 3.4% in August. The total unemployment rate of those aged 15 to 24 was 5.6%, an increase of 0.1 percentage points from the previous month. The labor force was flat. The number of employed persons decreased, while the number of unemployed persons increased.
The number of employees and the number of new job offers are increasing 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 (September survey), firms' judgment on current employment conditions showed that the labor shortage increased.
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 recently. Consumer prices are rising moderately.
Producer prices are declining moderately recently.
Consumer prices, in terms of general, excluding fresh food, petroleum products and other specific components (referred to as "core core"), are rising moderately. Changes from the previous month showed an increase of 0.1% on a chain base and an increase of 0.2% on a fixed base in August. Consumer prices, in terms of “general excluding fresh food” (referred to as “core”), are flat.
According to the Monthly Consumer Confidence Survey (general households), the ratio of households which forecast a rise in prices was 85.5% in August.
As for short-term prospects, consumer prices (core core) are expected to rise moderately for the time being.
As for stock prices, after declining from the 17,600-yen level to the 16,900-yen level, the Nikkei Stock Average rose to the 18,400-yen level. The yen against the U.S. dollar moved at the 119-yen level to the 120-yen level.