Monthly Economic ReportExecutive Summary( Jul 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 moderately.
- Exports are picking up.
- 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 moderately in recent months.
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. Furthermore, sufficient attention should be given to the economic impacts of the Heavy Rain in July 2018.
(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", the "Regulatory Reform Work Plan", the "Basic Policies for Overcoming Population Decline and Vitalizing Local Economy in Japan 2018", and the "Japan's Plan for the Dynamic Engagement of All Citizens". Moreover, in order to tackle the enormous challenge of the declining birthrate and aging population by promoting Supply System Innovation and Human Resources Development Revolution as two wheels of a cart, the Government will steadily implements the "New Economic Policy Package" and the "Basic Design for Human Resources Development Revolution". And the Government will smoothly enforce the Act on Arrangement of Relevant Act on Promoting the Work Style Reform enacted by the Diet. In addition, the Government implements the FY2017 supplementary budget and the FY2018 budget swiftly and steadily.
The Government will accelerate the provision of support for the daily lives of those affected by the Heavy Rain in July 2018 and work to swiftly advance the restoration and reconstruction of the affected areas.
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 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. 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 Shipment's, etc.), decreased by 0.4% in May 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 moderately.
Business investment is increasing moderately. The Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey) show that business investment decreased in the January-March quarter of 2018 by 0.0% from the previous quarter. By industry, business investment decreased for manufacturers by 3.4% from the previous quarter, and increased for non-manufacturers by 1.9%. Capital Goods Shipments and Imports, supply-side statistics, are picking up.
According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (June 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, are picking up.
As for short-term prospects, business investment is expected to increase, 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, houses for rent and houses for sale is almost flat. In addition, the total number of sales of condominiums in the Tokyo metropolitan area has been in a weak tone recently.
As for short-term prospects, housing construction is expected to remain flat for the time being.
Public investment holds firm.
Public investment holds firm. With a high level of public construction work remained, the amount of public construction completed in May decreased by 0.6% from the previous month, the amount of contracted public works in June decreased by 7.1% from the previous month, and the amount of public works orders received in May decreased by 10.8% from the previous year.
As for short-term prospects, public investment, partly due to the effect of the supplementary budget, is expected to show steady performance.
Exports are picking up. Imports show movements of picking up. The surplus in the balance of goods and services is almost flat.
Exports are picking up. By region, exports to Asia appear to be pausing. Exports to the U.S., EU and other regions are almost flat. As for short-term prospects, exports are expected to continue to pick up, mainly reflecting the moderate recovery of overseas economies.
Imports show movements of picking up. By region, imports from Asia and 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 surplus in the balance of goods and services is almost flat.
The surplus in the balance of trade in May decreased, as export values decreased while import values increased. The deficit in the balance of services increased.
2. Corporate activities and employment
Industrial production is increasing moderately.
Industrial production is increasing moderately. The Indices of Industrial Production decreased by 0.2% from the previous month in May. The Indices of Industrial Inventories increased by 0.6% from the previous month in May. The Survey of Production Forecast in Manufacturing expects an increase of 0.4% in June, and an increase of 0.8% in July.
By industry, transport equipment is increasing. General-purpose, production and business oriented machinery is increasing. Electronic parts and devices have a pause observed in their movements of growth.
As for short-term prospects, production is expected to continue to increase moderately reflecting the moderate recovery of overseas economies.
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 (January-March survey), corporate profits during the January-March quarter of 2018 increased by 0.2% from the previous year and by 1.7% from the previous quarter. By industry, manufacturers saw a decrease in corporate profits of 8.5%, and non-manufacturers saw an increase of 5.0%. By size of company, large and medium-sized companies saw an increase of 1.4% from the previous year, and small companies saw a decrease of 2.2%. According to the BOJ Tankan (June survey), in fiscal year 2018, sales are expected to increase by 2.2% 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 9.1% in the first half, and decrease by 0.9% in the second half from the previous year.
Firms' judgment on current business conditions is almost flat. The Tankan (June 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 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 business conditions fell, while prospective business conditions rose.
The number of corporate bankruptcies is almost flat.
The employment situation is improving steadily.
The employment situation is improving steadily. The total unemployment rate was 2.2% in May, a decrease of 0.3 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons decreased.
The number of employees has been increasing. The number of new job offers has been increasing. The effective ratio of job offers to applicants is increasing. 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 (June survey), firms' judgment on current employment conditions showed that the labor shortage remained severe.
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 moderately in recent months.
Producer prices are rising moderately.
Consumer prices, in terms of general, excluding fresh food and energy, are rising moderately in recent months.
According to the Monthly Consumer Confidence Survey(multi-person households), the ratio of households which forecast a rise in prices was 81.7% in June, a decrease of 0.4 percentage points from the previous month.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to rise moderately for the time being.
As for stock prices, after declining from the 22,500-yen level to the 21,500-yen level, the Nikkei Stock Average rose to the 22,600-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of appreciation from the 110-yen level to the 109-yen level, moved in the direction of depreciation to the 112-yen level.