Monthly Economic ReportExecutive Summary( Jun 2020 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is still in an extremely severe situation due to the Novel Coronavirus, but it almost stopped deteriorating.
- Private consumption is showing movements of picking up recently as the state of emergency was lifted.
- Business investment is in a weak tone recently.
- Exports are decreasing rapidly, due to the influence of the infectious disease.
- Industrial production is decreasing, due to the influence of the infectious disease.
- Corporate profits are decreasing rapidly, due to the influence of the infectious disease. Firms' judgments show signs of improvement, although some severe aspects remain. The number of corporate bankruptcies appears to be increasing.
- 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 move toward picking up from an extremely severe situation, 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 trend of domestic and overseas infections, 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.
The Government will increase socio-economic activities step-by-step, while continuing to implement measures to prevent the spread of the Novel Coronavirus. Under such situation, the Government will 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 in order to thoroughly secure employments, businesses and daily lives and achieve strong economic recovery and social structural changes.
The Government will decide the "Basic Policies for Economic and Fiscal Management and Reform 2020 (provisional) " etc. by the middle of July in order to lay out the basic direction of the blueprint of an economy and society that Japan should aim for, in response to the changes caused by the Novel Coronavirus to the mindset of the people and the situation of the world.
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
Private consumption is showing movements of picking up recently as the state of emergency was lifted.
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 5.6% in April from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that the real consumption expenses decreased by 6.2% from the previous month in April. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value decreased by 9.9% from the previous month in April.
Looking at the background of consumption trends, real wage income of employees has shown weak movements recently. As for consumer confidence, it is beginnig to stop deteriorating.
Concerning short-term prospects, the economy is expected to move toward 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) (March survey), planned business investment for all industries in fiscal year 2020 is expected to increase. On the other hand, according to the Business Outlook Survey (April-June survey), planned business investment in fiscal year 2020 is expected to decrease. In BOJ Tankan, firms' judgment on production capacity shows that their sense of shortage is becoming weaker on the whole, with feelings of excess seen 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 has been flat recently, although some weakness can still be seen. 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 is decreasing, mainly reflecting restraint in business due to the influence of the infectious disease.
As for short-term prospects, housing construction is expected to remain in a weak tone.
Public investment holds firm.
Public investment holds firm. The amount of public construction completed in April increased by 0.5% from the previous month, the amount of contracted public works in May decreased by 0.7% from the previous month, and the amount of public works orders received in April increased by 18.0% from the previous month.
As for short-term prospects, public investment is expected to show steady movement due to the execution of related budgets.
Exports are decreasing rapidly, due to the influence of the infectious disease. Imports are bottoming out, although the influence of the infectious disease remains. The balance of goods and services is in deficit.
Exports are decreasing rapidly, due to the influence of the infectious disease. By region, exports to Asia are decreasing. Exports to the U.S., EU and other regions are decreasing rapidly. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in May 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 are bottoming out, although the influence of the infectious disease remains. By region, imports from Asia bottom out recently. Imports from the U.S. and EU are in a weak tone recently. As for short-term prospects, imports are expected to remain affected by supply restriction due to the infectious disease for a while, although economic activities overseas began to resume gradually.
The balance of goods and services is in deficit.
The deficit in the balance of trade in April increased, as export values decreased. The deficit in the balance of services increased.
2. Corporate activities and employment
Industrial production is decreasing, due to the influence of the infectious disease.
Industrial production is decreasing, due to the influence of the infectious disease. The Indices of Industrial Production decreased by 9.8% from the previous month in April. The Indices of Industrial Inventories decreased by 0.3% from the previous month in April. The Survey of Production Forecast in Manufacturing expects a decrease of 4.1% in May, and an increase of 3.9% in June.
By industry, transport equipment is decreasing substantially. Production machinery is decreasing. Electronic parts and devices are picking up.
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 signs 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 (March survey), in fiscal year 2020, sales are expected to decrease by 0.7% in the first half of the year and are expected to increase by 0.8% in the second half from the previous year. Current profits are expected to decrease by 7.2% in the first half and increase by 2.9% in the second half from the previous year.
Firms' judgments show signs of improvement, although some severe aspects remain. The BOJ Tankan (March 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 June, becomes more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (May 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 2.6% in April, an increase of 0.1 percentage points from the previous month. The labor force and the number of employed persons decreased, while the number of unemployed persons increased.
The number of employees is decreasing substantially. The number of new job offers is decreasing 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 showing weakness recently. These results show that real wage income of employees shows some weak movement recently.
According to the BOJ Tankan (March survey), firms ' judgment on current employment conditions shows that the sense of a labor shortage is becoming weaker. Moreover, based on the interview results and so on, the daily number of active job openings to applicants compared to the previous year continues to decrease with the number of the number of suspensions of business increasing substantially, and employment situation shows some weak movements. On the other hand, following the lift of the state of emergency, the number of job openings for part-time job shows some signs of increasing.
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 are declining. Consumer prices are flat.
Producer prices are declining 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 72.3% in May, an increase of 1.6 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 rising from the 21,800-yen level to the 23,100-yen level, the Nikkei Stock Average declined to the 21,500-yen level, and thereafter rose to the 22,400-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 107-yen level to the 109-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.