Monthly Economic ReportExecutive Summary( Feb 2021 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy shows weakness in some components although it remains in picking up in a severe situation due to the Novel Coronavirus.
- Private consumption has been in a weak tone recently.
- Business investment is showing movements of picking up recently.
- Exports are increasing.
- Industrial production is picking up.
- Corporate profits are picking up as a whole, while weakness is seen in non-manufacturers due to the influence of the infectious disease. Firms' judgments on current business conditions show cautiousness recently, mainly among non-manufacturers.
- 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 pick 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 even after the state of emergency is lifted. However, full attention should be given to the further increase in downside risks due to the spread of the infectious diseases in Japan and abroad. Also attention should be given to 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 thoroughly secure people's lives and livelihoods through protecting employment and keeping businesses with determination to avoid a return to deflation absolutely while taking all possible measures towords prevention of the spread of the Novel Coronavirus. The Government will achieve a strong economic growth again through intensive reforms including regulatory reforms and necessary investments for the new purpose including realizing digitization and green society , based on the "Basic Policies for Economic and Fiscal Management and Reform 2020 " and so on.
The Government made it 10 prefectures subject to measures under a state of emergency in accordance with the mended Act on Special Measures for Pandemic Influenza and New Infectious Diseases Preparedness and Response since February 8th, extended the duration for which the state of emergency are being implemented until March 7th, on February 2nd. The Government will thoroughly continue to implement measures prioritizing prevention of the spread of infections. The Government will take all possible intensive and efficient support measures for economic impact. Moreover, the Government will achieve a path of economic growth led by private sector through increasing productivity and encouraging continuous wage increases while boldly calling for private investment to growth sectors. The Government will implement "Comprehensive Economic Measures to Secure People's Lives and Livelihoods toward Relief and Hope" etc. and the FY2020 third supplementary budget swiftly and properly, and work for early passage of the FY2021 budget and the related bills. The Government will continue to implement necessary support measures in a timely manner through utilizing reserve fund while paying careful attention to the satus of the disease and the economic impact.
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 pay careful attention to the economic impact of the infections and conduct appropriate monetary policy management, and 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 2020 increased by 3.0% on a quarterly basis (at an annual rate of 12.7%), posting positive growth for the second consecutive quarter. Nominal GDP increased by 2.5% on a quarterly basis, posting positive growth for the second consecutive quarter.
Private consumption has been in a weak tone 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 Shipment's, etc.), decreased by 2.4% in December from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that the real consumption expenses increased by 0.9% from the previous month in December. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value decreased by 0.7% from the previous month in December.
Looking at the background of consumption trends, real wage income of employees is showing movements of picking up as a whole, despite a decrease in bonuses. Meanwhile, consumer confidence has been weak.
Based on these results, private consumption has been in a weak tone recently. Concerning short-term prospects, the economy is expected to move toward picking up while measures are being taken to prevent the spread of infectious diseases. However, full attention should be given to the further downside risks to the domestic economy which is affected by the spread of infectious diseases.
Business investment is showing movements of picking up recently.
Business investment is showing movements of picking up recently. 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 2020 by 1.2% from the previous quarter. By industry, business investment decreased for manufacturers by 1.1% from the previous quarter and decreased for non-manufacturers by 1.3%.
Capital Goods Shipments and Imports, supply-side statistics, are showing movements of picking up.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (December survey), planned business investment in fiscal year 2020 is expected to decrease for manufacturers and non-manufacturers, 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, are picking up. The planned amount of construction is almost flat.
As for short-term prospects, business investment is expected to continue to be on a pick up trend mainly among machinery investment, reflecting actions in growth sectors and such, although a sense of uncertainty remains.
Housing construction is almost flat.
Housing construction is almost flat. Construction of owned houses has been showing movements of picking up recently. 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 almost flat.
As for short-term prospects, housing construction is expected to remain flat for the time being.
Public investment shows steady performance.
Public investment shows steady performance. The amount of public construction completed in December increased by 0.9% from the previous month, the amount of contracted public works in January increased by 17.4% from the previous month, while the amount of public works orders received in December decreased by 1.6% 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 increasing. Imports show movements of picking up. The balance of goods and services is in surplus.
Exports are increasing. By region, exports to Asia are increasing. Exports to the U.S. are almost flat. Exports to the EU are on a decline recently. Exports to other regions are picking up. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in January decreased by 98.3%. Concerning short-term prospects, exports are expected to continue to increase, supported by the improvement in overseas economies. However, full attention should be given to the downside risks of overseas economies.
Imports show movements of picking up. By region, imports from Asia show movements of picking up. Imports from the U.S. and the EU are almost flat. As for short-term prospects, imports are expected to pick up. However, full attention should be given to the further downside risks to the domestic economy which is affected by the spread of the infectious disease.
The balance of goods and services is in surplus. The surplus in the balance of trade in December decreased, as export values decreased. The deficit in the balance of services has been almost flat.
2. Corporate activities and employment
Industrial production is picking up.
Industrial production is picking up. The Indices of Industrial Production decreased by 1.0% from the previous month in December. The Indices of Industrial Inventories increased by 1.1% from the previous month in December. The Survey of Production Forecast in Manufacturing expects an increase of 8.9% in January, and a decrease of 0.3% in February.
By industry, transport equipment is flat recently. Production machinery is picking up. Electronic parts and devices are increasing moderately.
As for short-term prospects, production is expected to continue to pick 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 picking up as a whole, while weakness is seen in non-manufacturers due to the influence of the infectious disease. Firms' judgments on current business conditions show cautiousness recently, mainly among non-manufacturers. The number of corporate bankruptcies is decreasing moderately recently.
Corporate profits are picking up as a whole, while weakness is seen in non-manufacturers due to the influence of the infectious disease. During the October-December quarter of 2020, the current profits of the listed companies increased from the previous year for manufacturers and decreased for non-manufacturers. According to the BOJ Tankan (December survey), in fiscal year 2020, sales are expected to decrease by 13.2% in the first half of the year and are expected to decrease by 4.1% in the second half from the previous year. Current profits are expected to decrease by 43.4% in the first half and decrease by 25.3% in the second half from the previous year.
Firms' judgments on current business conditions show cautiousness recently, mainly among non-manufacturers. The BOJ Tankan (December 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 March, is slightly more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (January survey), current business conditions fell while prospective business conditions rose.
The number of corporate bankruptcies is decreasing moderately recently.
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 2.9% in December, the same level as 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 showing movements of picking up recently. The number of new job offers is showing movements of picking up recently. Active job openings to applicants ratio is almost flat. Overtime hours worked in the manufacturing industry are picking up.
As for the movement of wages, contractual cash earnings are showing movements of picking up recently. The total amount of cash earnings is showing weakness due to a decrease in special cash earnings, including bonuses. These results show that real wage income of employees is showing movements of picking up as a whole, despite a decrease in bonuses.
According to the BOJ Tankan (December 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 and the employment situation in the private sector remain at a low level, appearing to be pausing for picking up. 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. 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 moderately recently. Consumer prices are flat.
Producer prices are rising moderately recently.
Consumer prices, in terms of general, excluding fresh food and energy, are flat on the basis of excluding special factors in the form of policy measures.According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 65.4% in January, a decrease of 0.5 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 special factors in the form of policy measures.
As for stock prices, after declining from the 28,800-yen level to the 27,600-yen level, the Nikkei Stock Average rose to the 30,200-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 103-yen level to the 105-yen level, moved in the direction of appreciation to the 104-yen level, and thereafter moved in the direction of depreciation to the 106-yen level.