Monthly Economic ReportExecutive Summary( May 2020 )

(Provisional translation)

(Assessment of the current state of the Japanese economy)

The Japanese economy is worsening rapidly in an extremely severe situation, due to the Novel Coronavirus.

Private consumption is decreasing rapidly, due to the influence of the infectious disease.
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 on current business conditions are deteriorating rapidly, due to the influence of the infectious disease.
Employment situation shows some weak movements further, due to the influence of the infectious disease.
Consumer prices are flat.

Concerning short-term prospects, an extremely severe situation is expected to remain due to the influence of the infectious disease for the time being, although the socio-economic activities will be resumed gradually with taking measures to prevent the spread of infectious diseases.Also, attention should be given to 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.
  The Government extended the duration for which the state of emergency in accordance with the amended Act on Special Measures for Pandemic Influenza and New Infectious Diseases Preparedness and Response were being implemented until May 31st, on May 4th. The Government had decided to lift the state of emergency in all prefectures by May 25th. The Government will increase socio-economic activities step-by-step, while continuing to implement measures to prevent the spread of infections. 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 as soon as possible in order to make effort towards preventing the spread of infections, thoroughly secure employments, businesses and daily lives, and achieve strong economic recovery and social structural changes after the end of contagion. The Government will submit the FY2020 second supplementary budget (Cabinet Decision on May 27th) to the Diet swiftly and work for early passage of it.
  The Bank of Japan decided enhancement of monetary easing further on April 27th and introduction of a new fund-provisioning measure on May 22nd 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 January-March quarter of 2020 decreased by 0.9% on a quarterly basis (at an annual rate of 3.4%), posting negative growth for the second consecutive quarter. Nominal GDP decreased by 0.8% on a quarterly basis, posting negative growth for the second consecutive quarter.

Private consumption is decreasing rapidly, due to the influence of the infectious disease.

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 3.5% in March from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that the real consumption expenses decreased by 4.0% from the previous month in March. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value decreased by 4.6% from the previous month in March.

Looking at the background of consumption trends, real wage income of employees is almost flat recently. Consumer confidence is getting even worse.

As a whole, private consumption is decreasing rapidly, due to the influence of the infectious disease.

As for short-term prospects, private consumption is expected to remain at a low level due to the influence of the infectious disease.

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 (October-December survey, including software investment) show that business investment decreased in the October-December quarter of 2019 by 4.2% from the previous quarter. By industry, business investment decreased for manufacturers by 5.0% from the previous quarter, and decreased for non-manufacturers by 3.8%..

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 2019 is expected to increase. Planned business investment for fiscal year 2020 is also expected to increase. 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, are almost flat.

As for short-term prospects, cautious movements are expected to continue for a while, due to a decrease in cooperate 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 is showing signs of bottoming out. 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 March increased by 4.6% from the previous month, the amount of contracted public works in April decreased by 9.2% from the previous month, and the amount of public works orders received in March increased by 8.6% 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. and EU are decreasing rapidly. Exports to other regions are decreasing. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in April decreased by 99.9%. Concerning short-term prospects, exports will continue to decrease due to rapid deterioration of overseas economies. 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 balance of trade in March turned to negative, as export values decreased. The deficit in the balance of services has decreased.

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 3.7% from the previous month in March. The Indices of Industrial Inventories increased by 1.9% from the previous month in March. The Survey of Production Forecast in Manufacturing expects an increase of 1.4% in April, and a decrease of 1.4% in May.

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 continue to decrease. 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 on current business conditions are deteriorating rapidly, due to the influence of the infectious disease. The number of corporate bankruptcies appears to be increasing .

Corporate profits are decreasing rapidly, due to the influence of the infectious disease. During the January-March 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 (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 on current business conditions is deteriorating rapidly, due to the influence of the infectious disease. 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 (April survey), current and prospective business conditions fell significantly.

The number of corporate bankruptcies appears to be increasing.

Employment situation shows some weak movements further, due to the influence of the infectious disease.

Employment situation shows some weak movements further, due to the influence of the infectious disease. The total unemployment rate was 2.5% in March, 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 almost flat recently. The number of new job offers is decreasing. Active job openings to applicants ratio is decreasing. 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 have been moving horizontally recently. These results show that real wage income of employees is almost flat 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 is decreasing in April, and employment situation shows some weak movements further, due to the influence of the infectious disease, with the number of suspensions of business increasing and the number of consultations concerning employment adjustment, including suspension of business, increasing significantly

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.

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 70.7% in April, an increase of 0.4 percentage points from the previous month.

As for stock prices, after rising from the 19,200-yen level to the 20,100-yen level, the Nikkei Stock Average declined to the 19,600-yen level, and thereafter rose to the 21,200-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of appreciation from the 107-yen level to the 106-yen level, moved in the direction of depreciation to the 107-yen level.

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