Monthly Economic ReportExecutive Summary( Feb 2020 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is recovering at a moderate pace, while increased weakness mainly among manufacturers is continuing, as exports remain in a weak tone.
- Private consumption is picking up.
- Business investment shows weakness in some components,although it is on the increase at a moderate pace.
- Exports are in a weak tone.
- Industrial production remains in a weak tone.
- Corporate profits are in a weak tone, mainly among manufacturers, although they remain at a high level. Firms' judgments on current business conditions continue increasing cautiousness, mainly among manufacturers.
- Employment situation is improving.
- Consumer prices are rising at a slower tempo recently.
Concerning short-term prospects, weakness remains for the time being, but the economy is expected to continue recovering, supported by the effects of the policies, while employment and income situation is improving. However, full attention should be given to effects of the Novel Coronavirus on the Japanese and overseas economies. Also, attention should be given to situations in overseas economies including the situations over trade issues and the effects of fluctuations in the financial and capital markets.
(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 will strengthen economic growth by boosting potential growth rate and expand virtuous cycle of growth and distribution based on the " Basic Policy on Economic and Fiscal Management and Reform 2019 ", the " Action Plan of the Growth Strategy " and so on. Moreover, in order to create a society in which everyone plays an active role and feels secure, the Government will establish the social security system for all generations. Furthermore, the Government will continue to pay careful attention to the economic trend after the consumption tax rate hike and implement the FY2019 budget including the temporal and special measures steadily.
The Government will swiftly implement " Emergency Measures Regarding the Novel Coronavirus " (February 13th, the Novel Coronavirus Response Headquarters decision), and continue to pay careful attention to its effect on the economy and take all possible measures.
The Government will implement " Comprehensive Economic Measures to Create a Future with Security and Growth " and the FY2019 supplementary budget swiftly and steadily to accelerate the restoration and reconstruction of the areas affected by the successive natural disasters, to overcome the downside risks originated from the overseas economies such as the Novel Coronavirus certainly, and to achieve sustainable economic growth led by private sector demand. The Government will work for early passage of the FY2020 budget and the related bills.
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 October-December quarter of 2019 decreased by 1.6% on a quarterly basis (at an annual rate of 6.3%), posting negative growth for the first time in five quarters. Nominal GDP decreased by 1.2% on a quarterly basis, posting negative growth for the first time in five quarters.
Private consumption is picking up.
According to Quarterly Estimates of GDP (First Preliminary Estimates), private consumption increased by 0.5% on a quarterly basis in the July-September quarter of 2019, and thereafter decreased by 2.9% in the October-December quarter of 2019, due to typhoons and warm winter, besides a decline as a reaction to the last-minute demand to some extent associated with the consumption tax increase. However, private consumption before and after the previous consumption tax increase increased by 2.0% on a quarterly basis in the January-March quarter of 2014, and thereafter decreased by 4.8% in the April-June quarter of 2014. Based on that understanding, the last-minute demand and the decline as a reaction to it are not so great this time.
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.), decreased by 1.1% in December from the previous month.
Private consumption is picking up as a whole, reflecting that its decline rate is on a decreasing trend and real wage income of employees is increasing moderately. However, consumer confidence appears to be pausing for picking up.
Concerning short-term prospects, private consumption is expected to continue to pick up, supported by the improvement in the employment and income conditions situation is improving. However, full attention should be given to effects of the Novel Coronavirus.
Business investment shows weakness in some components, although it is on the increase at a moderate pace.
According to Quarterly Estimates of GDP (First Preliminary Estimates), business investment decreased by 3.7% on a quarterly basis, posting negative growth for the first time in three quarters, mainly due to effects of the disruption of supply chains affected by the Typhoon No. 19 of 2019.
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 2019 by 0.8% from the previous quarter. By industry, business investment increased for manufacturers by 1.6% from the previous quarter and decreased for non-manufacturers by 2.0%.
Capital Goods Shipments and Imports, supply-side statistics, began to increase on a monthly basis in December, after decreasing for two months in a row - in October and November. As a result, Capital Goods Shipments and Imports are almost flat, although it shows weakness in some areas.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (December survey), planned business investment for all industries in fiscal year 2019 is expected to increase. In BOJ Tankan, firms' judgment on production capacity indicates their sense of shortage mainly among non-manufacturers on the whole, although feelings of excess can be seen among manufacturers. The figures for Orders Received for Machinery, a leading indicator, appear to be pausing. The planned amount of construction increases after decreasing in September, is almost flat.
In this way, business investment shows weakness in some components, although it is on the increase at a moderate pace. As for short-term prospects, business investment is expected to increase at a moderate pace, mainly reflecting a high level of corporate profits and actions in growth sectors and such. However, full attention should be given to effects of the Novel Coronavirus.
Housing construction is in a weak tone.
Housing construction is in a weak tone. Construction of owned houses is in a weak tone recently. Construction of houses for rent is moderately decreasing. Construction of houses for sale is almost flat. 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 in a weak tone for the time being.
Public investment shows steady performance.
Public investment shows steady performance. The amount of public construction completed in November increased by 0.6% from the previous month, the amount of contracted public works in January increased by 5.2% from the previous month, and the amount of public works orders received in December decreased by 11.7% 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 in a weak tone. Imports are in a weak tone recently. The balance of goods and services is in surplus.
Exports are in a weak tone. By region, exports to Asia are in a weak tone. Exports to the U.S are on a decline. Exports to EU are on a moderate decline recently. Exports to other regions are almost flat. As for short-term prospects, exports are expected to show weakness for the time being, due to the slow recovery of overseas economies, and thereafter exports are expected to pick up again, mainly reflecting the moderate recovery of overseas economies. However, careful attention should be given to effects of the Novel Coronavirus outbreaks on inbound tourism and to downside risks of overseas economies including the Chinese economy.
Imports are in a weak tone recently. By region, imports from Asia and EU are in a weak tone recently. Imports from the U.S. are almost flat. As for short-term prospects, imports are expected to pick up. However, careful attention should be given to supply restriction due to effects of the Novel Coronavirus outbreaks.
The balance of goods and services is in surplus.
For the goods in December, the exports value has increased, so that the surplus has expanded. The margin of the surplus in the balance of services has expanded.
2. Corporate activities and employment
Industrial production remains in a weak tone.
Industrial production remains in a weak tone. The Indices of Industrial Production increased by 1.2% from the previous month in December. The Indices of Industrial Inventories increased by 0.9% from the previous month in December. The Survey of Production Forecast in Manufacturing expects an increase of 3.5% in January, and an increase of 4.1% in February.
By industry, transport equipment is decreasing recently. Production machinery is almost flat. Electronic parts and devices are picking up.
As for short-term prospects, industrial production is expected to show weakness for the time being and full attention should be given to downside risks of overseas economies including the Chinese economy, and effects of through supply-chain risk by the Novel Coronavirus. Afterwards, industrial production is expected to pick up.
Corporate profits are in a weak tone, mainly among manufacturers, although they remain at a high level. Firms' judgments on current business conditions continue increasing cautiousness, mainly among manufacturers. The number of corporate bankruptcies appears to be increasing recently .
corporate profits are in a weak tone, mainly among manufacturers, although they remain at a high level. During the October-December quarter of 2019, the current profits of the listed companies decreased from the previous year both for manufacturers and non-manufacturers. According to the BOJ Tankan (December survey), in fiscal year 2019, sales are expected to increase by 0.8% in the first half of the year, and are expected to decrease by 0.9% in the second half from the previous year. Current profits are expected to decrease by 5.0% in the first half and decrease by 10.3% in the second half from the previous year.
Firms' judgments on current business conditions continue increasing cautiousness, mainly among manufacturers.The BOJ Tankan (December survey) revealed that Firms' judgment on current business conditions deteriorated for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business condition as of March, becomes more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (January survey), current and prospective business conditions both rose.
The number of corporate bankruptcies appears to be increasing recently.
Employment situation is improving.
Employment situation is improving. Meanwhile, the sense of a labor shortage is at a high level. The total unemployment rate was 2.2% in December, the same level as 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 increasing moderately recently. The number of new job offers is on a downward trend. Active job openings to applicants ratio are almost flat recently. 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 increasing moderately. These results show that real wage income of employees is increasing moderately.
According to the BOJ Tankan (December survey),firms ' judgment on current employment conditions showed that the labor shortage remained severe, mainly among non-manufacturers.
As for short-term prospects, the employment situation is expected to improve.
3. Prices and the financial market
Producer prices are flat recently. Consumer prices are rising at a slower tempo recently.
Producer prices are flat recently on the basis of excluding the direct effects of the consumption tax increase.
onsumer prices, in terms of general, excluding fresh food and energy, are rising at a slower tempo recently on the basis of excluding the direct effects of the consumption tax increase and free early childhood education and nurseries. According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 78.2% in January, a decrease of 0.6 percentage points from the previous month .
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to start rising moderately 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 23,700-yen level to the 22,900-yen level, the Nikkei Stock Average rose to the 23,800-yen level, and thereafter declined to the 23,100-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of appreciation from the 109-yen level to the 108-yen level, moved in the direction of depreciation to the 109-yen level