Monthly Economic ReportExecutive Summary( Jul 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 recently.
- Exports are bottoming out, although the influence of the infectious disease remains.
- Industrial production shows signs of picking up recently in some sectors, although it is decreasing as a whole.
- Corporate profits are decreasing rapidly, 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 while the socio-economic activities will be resumed gradually 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 economic impact of The Heavy Rain Event of July 2020, and 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 step-by-step 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 that we create through building a new normal for everyday life, 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. To this end, the Government decided the " Basic Policies for Economic and Fiscal Management and Reform 2020 ～ Overcoming crisis towards a new future～", the " Action Plan of the Growth Strategy" and so on on July 17th.
The Government will continue to implement the " Emergency Economic Measures to cope with the Novel Coronavirus " (Cabinet Decision on April 20th) 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 compile a policy package towards the rebuilding of daily lives and livelihoods of the disaster victim by the Heavy Rain Event of July 2020.
The Bank of Japan enhances monetary easing with a view to doing its utmost to support financing mainly 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
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 0.2% in May from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that the real consumption expenses decreased by 0.1% from the previous month in May. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value increased by 1.9% from the previous month in May.
Looking at the background of consumption trends, real wage income of employees has been decreasing recently. As for consumer confidence, it 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 gradually with taking measures to prevent the spread of infectious diseases.
Business investment is in a weak tone recently.
Business investment is in a weak tone recently. 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 6.7% from the previous quarter. By industry, business investment increased for manufacturers by 6.1% from the previous quarter, and increased for non-manufacturers by 7.0%
Capital Goods Shipments and Imports, supply-side statistics, have shown weak movements recently.
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 in a weak tone recently.
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 has been in a weak tone. Construction of houses for sale has been in a weak tone. Total number of sales of condominiums in the Tokyo metropolitan area was decreasing, mainly reflecting restraint in business due to the influence of the infectious disease, but has also 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 May increased by 2.3% from the previous month, the amount of contracted public works in June increased by 4.2% from the previous month, and the amount of public works orders received in May decreased by 9.7% 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 bottoming out, although the influence of the infectious disease remains. Imports bottom out recently. The balance of goods and services is in deficit.
Exports are bottoming out, although the influence of the infectious disease remains. By region, exports to Asia are bottoming out. Exports to the U.S are on a decline. Exports to EU are on a moderate decline. Exports to other regions are decreasing rapidly. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in June decreased by 99.9%. As for short-term prospects, exports are expected to stop decreasing as overseas economies are picking up. However, full attention should be given to the further 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 May decreased, as import values decreased. The deficit in the balance of services decreased.
2. Corporate activities and employment
Industrial production shows signs of picking up recently in some sectors, although it is decreasing as a whole.
Industrial production shows signs of picking up recently in some sectors, although it is decreasing as a whole. The Indices of Industrial Production decreased by 8.9% from the previous month in May. The Indices of Industrial Inventories decreased by 2.5% from the previous month in May. The Survey of Production Forecast in Manufacturing expects an increase of 5.7% in June, and an increase of 9.2% in July.
By industry, transport equipment shows signs of picking up recently, although it decreased substantially. Production machinery is decreasing. Electronic parts and devices are almost flat.
As for short-term prospects, production is expected to stop decreasing. 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 rapidly, 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 are decreasing rapidly, due to the influence of the infectious disease. According to the Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey), corporate profits during the January-March quarter of 2020 decreased by 32.0% from the previous year and decreased by 11.6% from the previous quarter. By industry, manufacturers and non-manufacturers saw a decrease of 29.5% and 32.9% respectively in corporate profits from the previous year. By size of company, large and medium-sized companies and small companies saw a decrease of 42.0% and 11.5% respectively from the previous year. 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 (June survey), current and prospective business conditions both rose.
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 2.9% in May, an increase of 0.3 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 decreasing substantially. The number of new job offers has been showing signs of leveling off recently, although it decreased substantially. Active job openings to applicants ratio is decreasing substantially. Overtime hours worked in the manufacturing industry are decreasing substantially.
As for the movement of wages, contractual cash earnings and the total amount of cash earnings are decreasing recently. These results show that real wage income of employees is decreasing 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 shows signs of leveling off, with movements of job offering and job seeking emerging as economic activities have been resumed gradually
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 bottom out 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.According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 71.5% in June, a decrease of 0.8 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 22,400-yen level to the 21,900-yen level, the Nikkei Stock Average rose to the 22,900-yen level, and thereafter declined to the 22,700-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 106-yen level to the 107-yen level, moved in the direction of appreciation to the 106-yen level, and thereafter moved in the direction of depreciation to the 107-yen level.