Monthly Economic ReportExecutive Summary( Oct 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.
- Business investment is showing weakness.
- Exports are picking up.
- Industrial production shows movements of picking up.
- Corporate profits are decreasing substantially, due to the influence of the infectious disease. Firms' judgments shows 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 the socio-economic activities will be resumed with taking measures to prevent the spread of infectious diseases. However, attention should be given to situation in domestic and overseas infections 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 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 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 continue to implement the "Emergency Economic Measures to cope with the Novel Coronavirus " 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 hesitation or delay.
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 picking up.
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 0.8% in August from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that the real consumption expenses increased by 1.7% from the previous month in August. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value increased by 4.6% from the previous month in August.
Looking at the background of consumption trends, real wage income of employees is almost flat recently. Consumer confidence is picking up.
Concerning short-term prospects, the economy is expected to show movements of picking up while the socio-economic activities will be resumed with taking measures to prevent the spread of infectious diseases.
Business investment is showing weakness.
Business investment is showing weakness. The Quarterly Financial Statements Statistics of Corporations by Industry (April-June survey, including software investment) show that business investment decreased in the April-June quarter of 2020 by 6.3% from the previous quarter. By industry, business investment decreased for manufacturers by 5.3% from the previous quarter, and decreased for non-manufacturers by 6.8%.
Capital Goods Shipments and Imports, supply-side statistics, have shown weak movements.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (September 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 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, have been decreasing at a slower tempo.
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 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 August decreased by 0.7% from the previous month, the amount of contracted public works in September decreased by 9.9% from the previous month, and the amount of public works orders received in August decreased by 25.2% 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 picking up. Imports are in a weak tone recently. The balance of goods and services is in nearly equilibrium.
Exports are picking up. By region, exports to Asia and the U.S. are picking up. Exports to EU and other regions show movements of picking up. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in September decreased by 99.4%. Concerning short-term prospects, exports are expected to continue to pick up, supported by the improvement in overseas economies. However, full attention should be given to the downside risks of overseas economies.
Imports are in a weak tone recently. By region, imports from Asia and EU level off. Imports from the U.S. show weakness. 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 nearly equilibrium.The surplus in the balance of trade in August increased, as export values increased. The deficit in the balance of services increased.
2. Corporate activities and employment
Industrial production shows movements of picking up.
Industrial production shows movements of picking up. The Indices of Industrial Production increased by 1.0% from the previous month in August. The Indices of Industrial Inventories decreased by 1.3% from the previous month in August. The Survey of Production Forecast in Manufacturing expects an increase of 5.7% in September, and an increase of 2.9% in October.
By industry, transport equipment is picking up. Production machinery is bottoming out. Electronic parts and devices are increasing moderately.
As for short-term prospects, production is expected to show movements of picking 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. Firms ' judgments show movements of improvement, although some severe aspects remain. The number of corporate bankruptcies is almost flat.
Corporate profits are decreasing substantially, due to the influence of the infectious disease. According to the Quarterly Financial Statements Statistics of Corporations by Industry (April-June survey), corporate profits during the April-June quarter of 2020 decreased by 46.6% from the previous year and decreased by 29.7% from the previous quarter. By industry, manufacturers and non-manufacturers saw a decrease of 48.7% and 45.5% respectively in corporate profits from the previous year. By size of company, large and medium-sized companies and small companies saw a decrease of 35.3% and 79.6% respectively from the previous year. According to the BOJ Tankan (September survey), in fiscal year 2020, sales are expected to decrease by 10.0% in the first half of the year and are expected to decrease by 3.3% in the second half from the previous year. Current profits are expected to decrease by 38.9% in the first half, and decrease by 15.7% in the second half from the previous year.
Firms ' judgments show movements of improvement, although some severe aspects remain. The BOJ Tankan (September 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 December, remains almost unchanged from that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (September survey), current and prospective business conditions both rose.
The number of corporate bankruptcies is almost flat.
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 3.0% in August, 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 almost flat recently. The number of new job offers is almost flat recently. Active job openings to applicants ratio is decreasing. 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 almost flat recently. These results show that real wage income of employees is almost flat recently.
According to the BOJ Tankan (September 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 is bottoming out, although some weak movements are seen in the employment situation in the private sector. 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 while the socio-economic activities will be resumed. 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 rising at a slower tempo recently. Consumer prices are flat.
Producer prices are rising at a slower tempo recently 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, free early childhood education and nurseries, and the Go to Travel Campaign. According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 72.8% in September, a decrease of 2.3 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, free early childhood education and nurseries, and the Go to Travel Campaign.
As for stock prices, after rising from the 23,200-yen level to the 23,500-yen level, the Nikkei Stock Average declined to the 23,000-yen level, and thereafter rose to the 23,600-yen level. The yen against the U.S. dollar (inter-bank spot rate) moved from the 105-yen level to the 106-yen level.