Monthly Economic ReportExecutive Summary( Oct 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. Furthermore, sufficient attention should be given to the economic impacts by the successive natural disasters.
(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.
The Government will exert every effort for the provision of support for the daily lives of those affected by the successive natural disasters and 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. Consumer confidence has been in a weak tone recently.
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 0.0% in August 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. However, the influence of downward pressure on the economy due to natural disasters should be closely monitored for the time being.
Business investment is increasing.
Business investment is increasing. The Quarterly Financial Statements Statistics of Corporations by Industry (April-June survey) show that business investment increased in the April-June quarter of 2018 by 6.9% from the previous quarter. By industry, business investment increased for manufacturers by 11.0% from the previous quarter, and increased for non-manufacturers by 4.7%. Capital Goods Shipments and Imports, supply-side statistics, are picking up.
According to the Short-Term Economic Survey of Enterprises in Japan (Tankan) (September 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 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, houses for rent, and houses for sale are almost flat. In addition, the total number of sales of condominiums in the Tokyo metropolitan area is in a weak tone.
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 August decreased by 1.2% from the previous month, the amount of contracted public works in September increased by 1.6% from the previous month, and the amount of public works orders received in August decreased by 6.9% 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 almost flat. Imports are pausing recently. The surplus in the balance of goods and services is on a decreasing trend.
Exports are almost flat. By region, exports to Asia, the U.S., EU and other regions are almost flat. 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 are pausing recently. By region, imports from Asia are pausing recently. Imports from the U.S. and 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 on a decreasing trend.
The surplus in the balance of trade in August decreased, as export values increased to a smaller extent than import values. 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 increased by 0.2% from the previous month in August. The Indices of Industrial Inventories decreased by 0.4% from the previous month in August. The Survey of Production Forecast in Manufacturing expects an increase of 2.7% in September, and an increase of 1.7% in October.
By industry, transport equipment is pausing recently. General-purpose, production and business oriented machinery have a pause observed in their movements of growth. Electronic parts and devices are growing at a slower pace.
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 (April-June survey), current profits during the April-June quarter of 2018 increased by 17.9% from the previous year and by 16.9% from the previous quarter. By industry, manufacturers saw an increase of 27.5% from the previous year, and non-manufacturers saw an increase of 12.4% from the previous year. By size of company, large and medium-sized companies saw an increase of 23.1% from the previous year, and small companies saw an increase of 2.1%. According to the BOJ Tankan (September survey), in fiscal year 2018, sales are expected to increase by 2.8% in the first half of the year, and are expected to increase by 1.4% in the second half from the previous year. Current profits are expected to decrease by 6.1% 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 (September 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 December, becomes more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (September 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. Meanwhile, the sense of a labor shortage is at a high level. The total unemployment rate was 2.4% in August, a decrease of 0.1 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 has been increasing. The number of new job offers is almost flat.The effective ratio of job offers to applicants is increasing. Overtime hours worked in the manufacturing industry have been in a weak tone recently.
As for the movement of wages, contractual cash earnings and the total amount of cash earnings are increasing moderately.
According to the BOJ Tankan (September 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 moderately.
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 81.7% in September, an increase of 0.1 percentage point 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 23,400-yen level to the 24,200-yen level, the Nikkei Stock Average declined to the 22,500-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 111-yen level to the 114-yen level, moved in the direction of appreciation to the 112-yen level.