Monthly Economic ReportExecutive Summary( Jan 2021 )
(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 appears to be pausing for picking up.
- Business investment is starting to level off.
- Exports are increasing.
- Industrial production is picking up.
- Corporate profits are decreasing substantially due to the influence of the infectious disease, but the rate of decline is becoming smaller as a whole. 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 show movements of picking up, supported by the effects of the policies and improvement in overseas economies while taking measures to prevent the spread of infectious diseases. 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 issued a declaration of a state of emergency for designate 11 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 on January 7th and 13th, and will thoroughly implement measures prioritizing prevention of the spread of infections based on the declaration. 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 work for early passage of the FY2020 third supplementary budget, the FY2021 budget and the related bills to specify the "Comprehensive Economic Measures to Secure People's Lives and Livelihoods toward Relief and Hope" and so on, and will implement support measures through utilizing reserve fund.
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
Private consumption appears to be pausing for 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 Shipment's, etc.), decreased by 0.1% in November from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that the real consumption expenses decreased by 1.8% from the previous month in November. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value decreased by 2.1% from the previous month in November.
Looking at the background of consumption trends, real wage income of employees is showing movements of picking up recently. However, consumer confidence is in a weak tone.
Based on these results, private consumption appears to be pausing for picking up. 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 starting to level off.
Business investment is starting to level off. 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 almost flat.
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, show movements of picking up. The planned amount of construction is in a weak tone.
As for short-term prospects, business investment is expected to pick up, mainly 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 picking up.
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 November increased by 0.3% from the previous month, the amount of contracted public works in December decreased by 9.7% from the previous month, and the amount of public works orders received in November decreased by 2.8% 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 are leveling off. The balance of goods and services is in surplus.
Exports are increasing. By region, exports to Asia and the U.S. are increasing. Exports to the EU and other regions are picking up. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in December decreased by 97.7%. 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 are leveling off. By region, imports from Asia and EU are leveling off. Imports from the U.S. bottom out recently. 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 November increased, as export values increased. The deficit in the balance of services increased.
2. Corporate activities and employment
Industrial production is picking up.
Industrial production is picking up. The Indices of Industrial Production decreased by 0.5% from the previous month in November. The Indices of Industrial Inventories decreased by 1.5% from the previous month in November. The Survey of Production Forecast in Manufacturing expects a decrease of 1.1% in December, and an increase of 7.1% in January.
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 decreasing substantially due to the influence of the infectious disease, but the rate of decline is becoming smaller as a whole. 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 decreasing substantially due to the influence of the infectious disease, but the rate of decline is becoming smaller as a whole. According to the Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey), corporate profits during the July-September quarter of 2020 decreased by 28.4% from the previous year and increased by 33.7% from the previous quarter. By industry, manufacturers and non-manufacturers saw a decrease of 27.1% and 29.1% respectively in corporate profits from the previous year. By size of company, large and medium-sized companies and small companies saw a decrease of 25.5% and 35.4% respectively from the previous year. 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 (December survey), current business conditions fell while prospective business conditions slightly 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 November, a decrease of 0.2 percentage points from the previous month. The labor force and the number of employed persons increased while the number of unemployed persons decreased.
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 recently. 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 recently.
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 65.9% in December, a decrease of 2.5 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, the Nikkei Stock Average rose from the 26,500-yen level to the 28,500-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of appreciation from the 103-yen level to the 102-yen level, moved in the direction of depreciation to the 104-yen level, and thereafter moved in the direction of appreciation to the 103-yen level.