Monthly Economic ReportExecutive Summary( Dec 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.
- Private consumption is picking up as a whole, while weakness can be seen in some sectors.
- Business investment is decreasing recently.
- Exports are increasing.
- Industrial production is picking up.
- Corporate profits are decreasing substantially due to the influence of the infectious disease, but the rate of decline is becoming smaller as a whole. Firms' judgments show movements of improvement, although some severe aspects remain.
- Employment situation shows steady movements in some components such as the number of employees, while weakness remains, 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 taking measures to prevent the spread of infectious diseases. However, full attention should be given to the further downside risks to the domestic and foreign economy which are affected by the contraction in the socio-economic activities due to the spread of the infectious disease. Also 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 and coping with disasters becoming ever more severe and frequent. The Government will balance prevention of the spread of the Novel Coronavirus and economic activities, and thoroughly secure people's daily lives through protecting employment and keeping businesses with determination to avoid a return to deflation absolutely. The Government will achieve a strong economic growth again through intensive reforms including regulatory reforms and necessary investments for the new purpose including digitization that have been revealed by the spread of the infections. For the major policies of that, the Government will specify reforms in the Growth Strategy Council, which was newly established, along a major direction and priority issues discussed in the Council on Economic and Fiscal Policy, based on the " Basic Policies for Economic and Fiscal Management and Reform 2020 " and so on.
The Government will implement the " Emergency Economic Measures to cope with the Novel Coronavirus " including the FY2020 supplementary budget, and the FY2020 second supplementary budget, and smoothly and steadily implement the " Comprehensive Economic Measures to Secure People's Lives and Livelihoods toward Relief and Hope " (December 8th, Cabinet decision), to open up a new path for economic growth including realizing digitalization and green society by maintaining employment, continuing businesses, and restoring the economy in order to protect people's lives and livelihoods. The Government decided the FY2020 third supplementary budget (December 15th, Cabinet decision) and, in light of " Basic Principles of FY2021 Budget Formulation " (December 8th, Cabinet Decision) and " Fiscal 2021 Economic Outlook and Basic Stance for Economic and Fiscal Management " (December 18th, Approval of Cabinet), decided the FY2021 budget (December 21st, Cabinet Decision).
The Bank of Japan decided to extend the duration of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) and so on, with a view to continuing to support financing, mailnly of firms, on December 18th. The Government expects the Bank of Japan to pay careful attention to the economic impact of the infections and conduct appropriate monetary policy management, and 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
Private consumption is picking up as a whole, while weakness can be seen in some sectors.
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 2.1% in October from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that the real consumption expenses increased by 2.1% from the previous month in October. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value increased by 0.5% from the previous month in October.
Looking at the background of consumption trends, real wage income of employees is showing movements of picking up recently. However, consumer confidence appears to be pausing for picking up.
Concerning short-term prospects, the economy is expected to show movements of picking up while measures are being taken to prevent the spread of infectious diseases. However, full attention should be given to the further downside risks to the domestic economy which is affected by the spread of infectious diseases.
Business investment is decreasing recently.
Business investment is decreasing recently. The Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey, including software investment) show that business investment decreased in the July-September quarter of 2020 by 1.2% from the previous quarter. By industry, business investment decreased for manufacturers by 1.1% from the previous quarter and decreased for non-manufacturers by 1.3%.
Capital Goods Shipments and Imports, supply-side statistics, are decreasing recently.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (December survey), planned business investment in fiscal year 2020 is expected to decrease for manufacturers and non-manufacturers, thus that for all industries is expected to decrease. According to the Business Outlook Survey (October-December survey), planned business investment in fiscal year 2020 is expected to decrease. In BOJ Tankan, firms' judgment on production capacity has been showing a high feeling of excess mainly among manufacturers. The figures for Orders Received for Machinery, a leading indicator, are bottoming out.
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 has been flat recently. 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 is picking up.
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 October increased by 0.1% from the previous month, the amount of contracted public works in November decreased by 1.4% from the previous month, and the amount of public works orders received in October decreased by 2.9% 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 are increasing. Imports are leveling off. The balance of goods and services is in surplus.
Exports are increasing. By region, exports to Asia and the U.S. are increasing. Exports to the EU and other regions are picking up. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in November decreased by 97.7%. Concerning short-term prospects, exports are expected to continue to increase, supported by the improvement in overseas economies. However, full attention should be given to the downside risks of overseas economies.
Imports are leveling off. By region, imports from Asia and EU are leveling off. Imports from the U.S. bottom out recently. As for short-term prospects, imports are expected to pick up. However, full attention should be given to the further downside risks to the domestic economy which is affected by the spread of the infectious disease.
The balance of goods and services is in surplus.The surplus in the balance of trade in October decreased, as import values increased. The deficit in the balance of services decreased.
2. Corporate activities and employment
Industrial production is picking up.
Industrial production is picking up. The Indices of Industrial Production increased by 4.0% from the previous month in October. The Indices of Industrial Inventories decreased by 1.8% from the previous month in October. The Survey of Production Forecast in Manufacturing expects an increase of 2.7% in November, and a decrease of 2.4% in December.
By industry, transport equipment is picking up. Production machinery is almost flat. Electronic parts and devices are increasing moderately.
As for short-term prospects, production is expected to continue to pick 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 are decreasing substantially due to the influence of the infectious disease, but the rate of decline is becoming smaller as a whole. Firms' judgments show movements of improvement, although some severe aspects remain. The number of corporate bankruptcies is decreasing moderately recently.
Corporate profits are decreasing substantially due to the influence of the infectious disease, but the rate of decline is becoming smaller as a whole. According to the Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey), corporate profits during the July-September quarter of 2020 decreased by 28.4% from the previous year and increased by 33.7% from the previous quarter. By industry, manufacturers and non-manufacturers saw a decrease of 27.1% and 29.1% respectively in corporate profits from the previous year. By size of company, large and medium-sized companies and small companies saw a decrease of 25.5% and 35.4% respectively from the previous year. According to the BOJ Tankan (December survey), in fiscal year 2020, sales are expected to decrease by 13.2% in the first half of the year and are expected to decrease by 4.1% in the second half from the previous year. Current profits are expected to decrease by 43.4% in the first half and decrease by 25.3% in the second half from the previous year.
Firms' judgments show movements of improvement, although some severe aspects remain. The BOJ Tankan (December survey) revealed that firms' judgment on current business conditions rose for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business conditions as of March, is slightly 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 fell.
The number of corporate bankruptcies is decreasing moderately recently.
Employment situation shows steady movements in some components such as the number of employees, while weakness remains, due to the influence of the infectious disease.
The total unemployment rate was 3.1% 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 is showing movements of picking up recently. The number of new job offers is showing movements of picking up recently. Active job openings to applicants ratio is almost flat recently. Overtime hours worked in the manufacturing industry are showing movements of picking up.
As for the movement of wages, contractual cash earnings and the total amount of cash earnings are showing movements of picking up recently. These results show that real wage income of employees is showing movements of picking up recently.
According to the BOJ Tankan (December survey), firms' judgment on current employment conditions shows that the sense of a labor shortage remains strong in all industries, while manufacturers are feeling a sense of excess.Moreover, the daily number of active job openings to applicants compared to the previous year and the employment situation in the private sector show movements of picking up recently, although they remain at a low level. Based on these results, employment situation shows steady movements in some components such as the number of employees, while weakness remains, due to the influence of the infectious disease
As for short-term prospects of the employment situation, it is expected to show steady movement. 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 are flat recently. Consumer prices are flat.
Producer prices are flat recently.
Consumer prices, in terms of general, excluding fresh food and energy, are flat on the basis of excluding special factors in the form of policy measures. According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 68.4% in November, a decrease of 4.0 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 special factors in the form of policy measures.
As for stock prices, after rising from the 26,500-yen level to the 26,800-yen level, the Nikkei Stock Average declined to the 26,400-yen level, and thereafter rose to the 26,700-yen level. The yen against the U.S. dollar (inter-bank spot rate) moved in the direction of appreciation from the 104-yen level to the 103-yen level.