Monthly Economic ReportExecutive Summary( Jul 2016 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is on a moderate recovery, while weakness can be seen recently.
- Private consumption is almost flat, while consumer confidence appears to be pausing.
- Business investment is picking up.
- Exports are almost flat.
- Industrial production is flat.
- Corporate profits improvement appears to be pausing, although they remain at a high level. Firms' judgment on current business conditions shows cautiousness further.
- The employment situation is improving.
- Consumer prices are rising at a slower tempo recently.
Concerning short-term prospects, the economy is expected toward recovery, supported by the effects of the policies, while employment and income situation is improving. However, there are downside risks of the Japanese economy including slowing down of emerging Asian economies including the Chinese economy and countries with natural resources amid the weakness of overseas economies. In addition, attention should be given to the increased uncertainty in overseas economies, including the issues of the UK leaving the EU and the effects of fluctuations in the financial and capital markets. Also, full attention should be given to the economic impact of the 2016 Kumamoto Earthquake.
(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 make effort toward the reconstruction and revitalization from the Great East Japan Earthquake. To this end, the Government steadily implements the "Basic Policies for Economic and Fiscal Management and Reform 2016", the "Japan Revitalization Strategy 2016" , the "Regulatory Reform Work Plan" , the "Basic Policies for Overcoming Population Decline and Vitalizing Local Economy in Japan 2016", and the "Japan's Plan for the Dynamic Engagement of All Citizens"． In addition, the government will develop a new economic stimulus package by the end of July 2016.The Government also swiftly and steadily implements the FY2015 supplementary budget and accelerates the implementation of the FY2016 budget, and will implement that in the first half of FY2016 as much as possible.
Utilizing the FY2016 supplementary budget etc., the Government will make sure to support for the daily lives of those affected by the 2016 Kumamoto Earthquake, and also work on promoting early recovery of the local economy and industries.
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 investment, wage increase and further improvement in the employment situation by these measures.
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 almost flat, while consumer confidence appears to be pausing.
Private consumption is almost flat. Real wage income of employees is increasing moderately, while consumer confidence appears 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 0.3% in May from the previous month.
As for short-term prospects, the Synthetic Consumption index is expected to pick up, supported by the improvement in the employment and income situations. However, attention should be given to the trend of consumer confidence.
Business investment is picking up.
Business investment is picking up. The Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey) show that business investment increased in the January-March quarter of 2016 by 1.4% from the previous quarter after decreasing in the October-December quarter of 2015 by 0.1%. By industry, business investment increased for manufacturers by 1.2% and for non-manufacturers by 1.5% from the previous quarter. 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 2016 is expected to increase for five consecutive years, that for manufacturers is expected to increase for six consecutive years, while that for non-manufacturers is expected to decrease for the first time in five years. According to the Business Outlook Survey (April-June survey), planned business investment for all industries in fiscal year 2016 is expected to increase. The figures for Orders Received for Machinery, a leading indicator, appear to be pausing.
As for short-term prospects, business investment is expected to increase, mainly reflecting the improvement of corporate profits so far.
Housing construction has shown movements of picking up.
Housing construction has shown movements of picking up. Construction of owned houses, houses for rent and houses for sale have shown movements of 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 pick up gradually.
Public investment is decreasing moderately.
Public investment is decreasing moderately. The amount of public construction completed in May decreased by 0.2% from the previous month, and decreased by 6.3% from the previous year. The amount of contracted public works in June decreased by 1.8% and the amount of public works orders received in May increased by 1.9% from the previous year.
As for short-term prospects, a boosting effect by the early execution of related budgets and the supplementary budget is expected.
Exports and imports are almost flat. The surplus in the balance of goods and services is flat.
Exports are almost flat. By region, exports to Asia and the U.S. are almost flat. Exports to the EU show movements of picking up. Exports to other regions are in a weak tone. 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 and the EU are almost flat. Imports from the U.S. are in weak tone. As for short-term prospects, imports are expected to pick up gradually.
The surplus in the balance of goods and services is flat. The surplus in the balance of trade in May decreased, as import values increased to a greater extent than export values. The deficit in the balance of services increased.
2. Corporate activities and employment
Industrial production is flat.
Industrial production is flat. The Indices of Industrial Production decreased by 2.6% from the previous month in May. The Indices of Industrial Inventories increased by 0.4% from the previous month in May. The Survey of Production Forecast in Manufacturing expects an increase of 1.7% in June, and an increase of 1.3% in July.
By industry, transport equipment is almost flat. General-purpose, production and business-oriented machinery are flat. Electronic parts and devices are in a weak tone.
As for short-term prospects, production is expected to pick up gradually mainly reflecting the moderate recovery of overseas economies.
Corporate profits improvement appears to be pausing, although they remain at a high level. Firms' judgment on current business conditions shows cautiousness further. The number of corporate bankruptcies is almost flat.
Corporate profits improvement appears to be pausing, although they remain at a high level. According to the Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey), corporate profits during the January-March quarter of 2016 decreased by 9.3% from the previous year and by 6.8% from the previous quarter. By industry, manufacturers saw a decrease of 20.4% in corporate profits from the previous year, while non-manufacturers saw a decrease of 4.5%. By size of company, large and medium-sized companies saw a decrease of 15.5% from the previous year, while small companies saw an increase of 1.3%. According to the BOJ Tankan (June Survey), in fiscal year 2016, sales are expected to decrease by 1.2% in the first half of the year, and are expected to increase by 0.9% in the second half from the previous year. Current profits are expected to decrease by 13.9% in the first half, and are expected to increase by 0.2% in the second half from the previous year.
Firms' judgment on current business conditions shows cautiousness further. The Tankan (June survey) revealed that firms' judgment on current business conditions becomes cautious for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business condition as of September, becomes more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (June survey), current and prospective business conditions fell.
The number of corporate bankruptcies is almost flat.
The employment situation is improving.
The employment situation is improving. The total unemployment rate stood at 3.2% in May, the same level as the previous month. The total unemployment rate of those aged 15 to 24 was 5.3%, an increase of 0.4 percentage points from the previous month. The labor force and the number of employed persons and unemployed persons increased.
The number of employees is increasing. The number of new job offers is increasing. The effective ratio of job offers to applicants is increasing. Overtime hours worked in the manufacturing industry are in a weak tone.
As for the movement of wages, contractual cash earnings are almost flat. The total amount of cash earnings is increasing moderately.
According to the BOJ Tankan (June survey), firms' judgment on current employment conditions shows that the labor shortage has eased in all industries.
As for short-term prospects, the employment situation is expected to improve.
3. Prices and the financial market
Producer prices are declining at a slower tempo recently. Consumer prices are rising at a slower tempo recently.
Producer prices are declining at a slower tempo recently.
Consumer prices, in terms of general, excluding fresh food, petroleum products and other specific components, are rising at a slower tempo recently.
According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 71.8% in June, a decrease of 7.1% points from the previous month.
As for short-term prospects, consumer prices (general, excluding fresh food, petroleum products and other specific components) are expected to rise moderately for the time being.
As for stock prices, after rising from the 15,900-yen level to the 16,200-yen level, the Nikkei Stock Average declined to the 14,900-yen level, and thereafter rose to the 16,800-yen level with fluctuations. The yen against the U.S. dollar, after moving in the direction of appreciation from the 104-yen level to the 100-yen level, moved in the direction of depreciation to the 107-yen level.