Monthly Economic ReportExecutive Summary( Aug 2020 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is still in a severe situation due to the Novel Coronavirus, but it is showing movements of picking up recently.
- Private consumption is picking up recently.
- Business investment is in a weak tone.
- Exports show movements of picking up.
- Industrial production shows movements of picking up in some sectors.
- Corporate profits are decreasing substantially, due to the influence of the infectious disease. Firms' judgments shows movements of improvement, although some severe aspects remain.
- Employment situation is showing weakness, due to the influence of the infectious disease.
- Consumer prices are flat.
Concerning short-term prospects, the economy is expected to show movements of picking up, supported by the effects of the policies and improvement in overseas economies while the socio-economic activities will be resumed with taking measures to prevent the spread of infectious diseases. However, attention should be given to the risk that domestic and overseas infections would affect economies. Also, full attention should be given to the effects of fluctuations in the financial and capital markets.
(Policy stance)
The Government will make effort toward the reconstruction and revitalization from the Great East Japan Earthquake. Through balancing the efforts to prevent the spread of the Novel Coronavirus and to increase socio-economic activities and coping with disasters becoming ever more severe and frequent, the Government will thoroughly secure people's lives, daily lives, employments, and businesses with determination to avoid a return to deflation absolutely. The Government will aim to realize the high-quality economy and society in which everyone can feel growth that we create through building a new normal for everyday life early, as the basic direction of the blueprint of an economy and society in a new future after we overcome the social issues that have been revealed by the recent spread of infections and we will develop an action plan that will clarify the policy objectives and the policy schedule etc. for the major policies by the end of this year, based on the "Basic Policies for Economic and Fiscal Management and Reform 2020 " and so on.
The Government will continue to implement the "Emergency Economic Measures to cope with the Novel Coronavirus" including the FY2020 supplementary budget, and the FY2020 second supplementary budget as soon as possible, and carefully examine the status of the disease and the economic trend in Japan and overseas and impact on people's lives, and take flexible actions as needed without delay.
The Government will swiftly implement the "Policy Package towards the Rebuilding of Daily Lives and Livelihoods of the Disaster Victim" compiled on July 30th for the Heavy Rain Event of July 2020.
The Bank of Japan enhances monetary easing with a view to doing its utmost to support financing mailnly of firms and maintaining stability in financial market. The Government expects the Bank of Japan to achieve the price stability target of two percent in light of economic activity, prices and financial conditions.
Detailed explanations
1. Demand trends such as consumption and investment
Real GDP (gross domestic product) in the April-June quarter of 2020 decreased by 7.8% on a quarterly basis (at an annual rate of 27.8%), posting negative growth for the third consecutive quarter. Nominal GDP decreased by 7.4% on a quarterly basis, posting negative growth for the third consecutive quarter.Private consumption is picking up 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 Shipments, etc.), increased by 9.4% in June from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that the real consumption expenses increased by 13.0% from the previous month in June. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value increased by 13.1% from the previous month in June.
Looking at the background of consumption trends, real wage income of employees is decreasing at a slower tempo recently. Consumer confidence shows movements of picking up.
Concerning short-term prospects, the economy is expected to show movements of picking up while the socio-economic activities will be resumed with taking measures to prevent the spread of infectious diseases.
Business investment is in a weak tone.
Business investment is in a weak tone. The Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey, including software investment) show that business investment increased in the January-March quarter of 2020 by 3.6% from the previous quarter. By industry, business investment increased for manufacturers by 1.7% from the previous quarter, and increased for non-manufacturers by 4.6%.
Capital Goods Shipments and Imports, supply-side statistics, have shown weak movements.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (June survey), planned business investment in fiscal year 2020 is expected to increase for manufacturers, and that for non-manufacturers is expected to decrease, thus that for all industries is expected to increase. In BOJ Tankan, firms' judgment on production capacity shows feelings of excess mainly among manufacturers. The figures for Orders Received for Machinery, a leading indicator, have been decreasing.
As for short-term prospects, cautious movements are expected to continue for a while, due to a decrease in corporate profits and a growing sense of uncertainty about the future.
Housing construction is in a weak tone.
Housing construction is in a weak tone. Construction of owned houses is in a weak tone. Construction of houses for rent is moderately decreasing. Construction of houses for sale has been in a weak tone. 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.
Public investment shows steady performance.
Public investment shows steady performance. The amount of public construction completed in June increased by 0.3% from the previous month, the amount of contracted public works in July decreased by 2.1% from the previous month, and the amount of public works orders received in June decreased by 8.6% from the previous month.
As for short-term prospects, public investment is expected to show steady performance due to the execution of related budgets.
Exports show movements of picking up. Imports bottom out recently. The balance of goods and services is in deficit.
Exports show movements of picking up. By region, exports to Asia and the U.S. show movements of picking up. Exports to EU bottom out. Exports to other regions are bottoming out. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in July decreased by 99.9%. Concerning short-term prospects, exports are expected to show movements of picking up, supported by the improvement in overseas economies. However, full attention should be given to the downside risks of overseas economies.
Imports bottom out recently. By region, imports from Asia level off. Imports from the U.S. and EU have been in a weak tone. As for short-term prospects, imports are expected to pick up while the socio-economic activities will be resumed.
The balance of goods and services is in deficit.
The deficit in the balance of trade in June decreased, as import values decreased. The deficit in the balance of services decreased.
2. Corporate activities and employment
Industrial production shows movements of picking up in some sectors.
Industrial production shows movements of picking up in some sectors. The Indices of Industrial Production increased by 1.9% from the previous month in June. The Indices of Industrial Inventories decreased by 2.4% from the previous month in June. The Survey of Production Forecast in Manufacturing expects an increase of 11.3% in July, and an increase of 3.4% in August.
By industry, transport equipment shows movements of picking up. Production machinery is bottoming out. Electronic parts and devices are almost flat.
As for short-term prospects, production is expected to show movements of picking up. However, full attention should be given to the further downside risks of overseas economies, and to the effects of supply-chain risk by the infectious disease.
Corporate profits continue to decrease substantially, due to the influence of the infectious disease. Firms' judgments show movements of improvement, although some severe aspects remain. The number of corporate bankruptcies appears to be increasing.
Corporate profits continue to decrease substantially, due to the influence of the infectious disease. During the April-June quarter of 2020, the current profits of the listed companies decreased from the previous year both for manufacturers and non-manufacturers. According to the BOJ Tankan (June survey), in fiscal year 2020, sales are expected to decrease by 6.4% in the first half of the year and are expected to decrease by 1.4% in the second half from the previous year. Current profits are expected to decrease by 29.6% in the first half, and decrease by 7.7% in the second half from the previous year.
Firms' judgments show movements of improvement, although some severe aspects remain. The BOJ Tankan (June survey) revealed that firms' judgment on current business conditions deteriorated substantially for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business conditions as of September, is slightly more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (July survey), current business conditions rose while prospective business conditions fell.
The number of corporate bankruptcies appears to be increasing.
Employment situation is showing weakness, due to the influence of the infectious disease.
Employment situation is showing weakness, due to the influence of the infectious disease. The total unemployment rate was 2.8% in June, 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 is decreasing. The number of new job offers is almost flat recently. Active job openings to applicants ratio is decreasing substantially. Overtime hours worked in the manufacturing industry are decreasing.
As for the movement of wages, contractual cash earnings and the total amount of cash earnings are decreasing at a slower tempo recently. These results show that real wage income of employees is decreasing at a slower tempo recently.
According to the BOJ Tankan (June survey), firms' judgment on current employment conditions shows that the sense of a labor shortage is becoming weaker, with manufacturers turning to sense a labor excess.Moreover, based on the interview results and so on, the daily number of active job openings to applicants compared to the previous year is bottoming out, although some week movements are seen in the results of the Economic Watchers Survey and the employment situation in the private sector.
As for short-term prospects the employment situation, it is expected to show steady movement while the socio-economic activities will be resumed gradually. However, it may become weaker, depending on employment adjustment. Full attention should be given to the influence of the infectious disease.
3. Prices and the financial market
Producer prices bottom out. Consumer prices are flat.
Producer prices are rising moderately in recent months on the basis of excluding the direct effects of the consumption tax increase.
Consumer prices, in terms of general, excluding fresh food and energy, are flat on the basis of excluding the direct effects of the consumption tax increase and free early childhood education and nurseries. The chain base index number excluding the direct effects of the consumption tax increase and free early childhood education and nurseries rose by 0.2% from the previous year (estimation by the Cabinet Office).According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 73.7% in July, an increase of 2.2 percentage points from the previous month.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to remain flat on the basis of excluding the direct effects of the consumption tax increase and free early childhood education and nurseries.
As for stock prices, after declining from the 22,700-yen level to the 21,700-yen level, the Nikkei Stock Average rose to the 23,200-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of appreciation from the 105-yen level to the 104-yen level, moved in the direction of depreciation to the 106-yen level.