Monthly Economic ReportExecutive Summary( Sep 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 pausing recently.
- 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", 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. In addition, the Government implements the FY2017 supplementary budget and the FY2018 budget swiftly and steadily.
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.), decreased by 0.8% in July 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 (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) (June survey) and the Business Outlook Survey (July-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 is 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 June decreased by 0.2% from the previous month, the amount of contracted public works in August increased by 1.3% from the previous month, and the amount of public works orders received in July decreased by 11.8% 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 pausing recently. Imports are pausing recently. The surplus in the balance of goods and services is on a decreasing trend.
Exports are pausing recently. By region, exports to Asia are pausing recently. Exports to 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.
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 July decreased, 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 decreased by 0.1% from the previous month in July. The Indices of Industrial Inventories decreased by 0.2% from the previous month in July. The Survey of Production Forecast in Manufacturing expects an increase of 5.6% in August, and an increase of 0.5% in September.
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 increasing moderately.
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 (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 (August 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 2.5% in July, 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 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 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 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 81.6% in August, 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 declining from the 22,800-yen level to the 22,300-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 111-yen level to the 110-yen level, moved in the direction of depreciation to the 111-yen level.