Monthly Economic ReportExecutive Summary( Dec 2018 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is recovering at a moderate pace.
- Private consumption is picking up.
- Business investment is increasing.
- Exports are almost flat.
- Industrial production is increasing moderately.
- Corporate profits are improving. Firms' judgment on current business conditions is almost flat.
- The employment situation is improving steadily.
- Consumer prices are rising at a slower tempo recently.
Concerning short-term prospects, the economy is expected to continue recovering, supported by the effects of the policies, while employment and income situation is improving. However, attention should be given to the effects of situations over trade issues on the world economy, the uncertainty in overseas economies and the effects of fluctuations in the financial and capital markets.
(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 and the restoration and reconstruction from the 2016 Kumamoto Earthquake.
To this end, the Government steadily implements the "Basic Policies for Economic and Fiscal Management and Reform 2018", the "Growth Strategy 2018" and so on. Moreover, in order to establish the social security system oriented to all generations under which people of all generations can live at ease and work, the Government will promote comprehensive reform of the system including the labor system. Futhermore, looking ahead to the consumption tax rate hike planned for October 1, 2019, the Government will take all possible measures towards economic and fiscal management.
Implementing the FY2018 first supplementary budget swiftly and steadily, the Government will exert every effort for the restoration and reconstruction of the areas affected by the successive natural disasters. And the Government will compile the FY2018 second supplementary budget and swiftly undertake the "Three-year Emergency Response Plan for Disaster Prevention, Disaster Mitigation, and Building National Resilience" decided by the Cabinet on December 14th.
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.
The Government presented the "Basic Principles of FY2019 Budget Formulation" (December 7th, Cabinet decision) and the "Fiscal 2019 Economic Outlook and Basic Stance for Economic and Fiscal Management" (December 18th, Approval of Cabinet) toward the compilation of the FY2019 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 picking up.
Private consumption is picking up. Real wage income of employees is increasing moderately. Consumer confidence is in a weak tone.
The Synthetic Consumption Index, which synthesizes demand-side statistics (Family Income and Expenditure Survey, etc.) and supply-side statistics (Indices of Industrial Producer's Shipment's, etc.), increased by 0.3% in October from the previous month.
Concerning short-term prospects, consumption is expected to continue to pick up, supported by the improvement in the employment and income situations.
Business investment is increasing.
Business investment is increasing. The Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey) show that business investment decreased in the July-September quarter of 2018 by 4.0% from the previous quarter. By industry, business investment decreased for manufacturers by 5.3% from the previous quarter, and decreased for non-manufacturers by 3.3%. Capital Goods Shipments and Imports, supply-side statistics, are picking up.
According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (December survey), planned business investment for all industries in fiscal year 2018 is expected to increase. In Tankan, firms' judgment on production capacity indicates their sense of shortage. The figures for Orders Received for Machinery, a leading indicator, appear to be pausing. The planned amount of construction is increasing moderately.
As for short-term prospects, business investment is expected to continue increasing, mainly reflecting the improvement of corporate profits and actions in growth sectors.
Housing construction is almost flat.
Housing construction is almost flat. Construction of owned houses and houses for sale is almost flat. Construction of houses for rent has been in a weak tone recently. In addition, the total number of sales of condominiums in the Tokyo metropolitan area has been showing movements of picking up recently.
As for short-term prospects, housing construction is expected to remain in a weak tone for the time being.
Public investment has been in a weak tone recently.
Public investment has been in a weak tone recently. The amount of public construction completed in October decreased by 1.4% from the previous month, the amount of contracted public works in November decreased by 11.4% from the previous month, and the amount of public works orders received in October decreased by 7.7% from the previous month.
As for short-term prospects, the supplementary budget is expected to be gradually producing effects.
Exports are almost flat. Imports appear to be pausing. The deficit in the balance of goods and services has been growing recently.
Exports are almost flat. By region, exports to Asia, the U.S. and EU are almost flat. Exports to other regions are in a weak tone. As for short-term prospects, exports are expected to pick up, mainly reflecting the moderate recovery of overseas economies. However, attention should be given to the effects of situations over trade issues on the world economy.
Imports appear to be pausing. By region, imports from Asia appear to be pausing. Imports from the U.S. show movements of picking up. Imports from EU are almost flat. As for short-term prospects, imports are expected to pick up.
The deficit in the balance of goods and services has been growing recently.
The deficit in the balance of trade in October increased, as export values increased to a smaller extent than import values. The deficit in the balance of services decreased.
2. Corporate activities and employment
Industrial production is increasing moderately.
Industrial production is increasing moderately. The Indices of Industrial Production increased by 2.9% from the previous month in October. The Indices of Industrial Inventories decreased by 1.3% from the previous month in October. The Survey of Production Forecast in Manufacturing expects an increase of 0.6% in November, and an increase of 2.2% in December.
By industry, transport equipment is increasing moderately. Production machinery is almost flat. Electronic parts and devices are growing at a slower pace.
As for short-term prospects, production is expected to continue to increase moderately.
Corporate profits are improving. Firms' judgment on current business conditions is almost flat. The number of corporate bankruptcies is almost flat.
Corporate profits are improving. According to the Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey), corporate profits during the July-September quarter of 2018 increased by 2.2% from the previous year and decreased by 14.3% from the previous quarter. By industry, manufacturers saw a decrease of 1.6% in corporate profits from the previous year, and non-manufacturers saw an increase of 4.6%. By size of company, large and medium-sized companies saw an increase of 1.9% from the previous year, and small companies saw an increase of 3.0%. According to the BOJ Tankan (December survey), in fiscal year 2018, sales are expected to increase by 3.4% in the first half of the year and are expected to increase by 2.1% in the second half from the previous year. Current profits are expected to increase by 2.4% in the first half and decrease by 4.1% in the second half from the previous year.
Firms' judgment on current business conditions is almost flat. The Tankan (December survey) revealed that firms' judgment on current business conditions was almost flat for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business condition as of March, becomes more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (November survey), current and prospective business conditions both rose.
The number of corporate bankruptcies is almost flat.
The employment situation is improving steadily.
The employment situation is improving steadily. Meanwhile, the sense of a labor shortage is at a high level. The total unemployment rate was 2.4% in October, an increase of 0.1 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 has been increasing. The number of new job offers is almost flat. The effective ratio of job offers to applicants is almost flat. Overtime hours worked in the manufacturing industry are almost flat.
As for the movement of wages, contractual cash earnings and the total amount of cash earnings are increasing moderately.
According to the BOJ Tankan (December survey), firms' judgment on current employment conditions shows that the sense of a labor shortage is becoming stronger.
As for short-term prospects, the employment situation is expected to improve steadily.
3. Prices and the financial market
Producer prices are rising moderately. Consumer prices are rising at a slower tempo recently.
Producer prices are rising at a slower tempo recently.
Consumer prices, in terms of general, excluding fresh food and energy, 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 84.5% in November, an increase of 1.6 percentage points from the previous month.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to start rising moderately.
As for stock prices, after rising from the 21,800-yen level to the 22,500-yen level, the Nikkei Stock Average declined to the 21,100-yen level. The yen against the U.S. dollar (inter-bank spot rate) moved mostly from the 112-yen level to the 113-yen level.