Monthly Economic ReportExecutive Summary( Jun 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 shows weakness further recently, especially in service spending.
  • Business investment is picking up.
  • Exports continue to increase moderately.
  • 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 appear to be pausing for picking up, while some severe aspects still 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 taking measures to prevent the spread of infectious diseases, and accelerating vaccinations. However, full attention should be given to the movement of infections that would affect the domestic and foreign economy. 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‚Äôs lives and livelihoods through protecting employment and keeping businesses with determination to avoid a return to deflation absolutely while taking all possible measures towards prevention of the spread of the Novel Coronavirus. Furthermore, the Government decided the "Basic Policies for Economic and Fiscal Management and Reform 2021", etc. on June 18th, in order to make intensive investments in four issues, green and digital fields, creation of vibrant communities, and countermeasures against the declining birthrate, and to bring solutions to long-standing problems and achieve a powerful growth. The Government implements the state of emergency measures in Okinawa Prefecture and priority measures such as for prevention of the spread of disease in designate 10 prefectures, after having lifted the state of emergency in 9 prefectures on June 20th. The Government will thoroughly continue to accelerate vaccinations and implement measures prioritizing prevention of the spread of infections, and 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 the FY2020 third supplementary budget and the FY2021 budget swiftly and properly. Moreover, the Government will continue to implement necessary measures in a flexible manner through utilizing reserve fund and conduct flexible macroeconomic policy management to the self-sustaining economic growth without hesitation. The Bank of Japan decided to extend the duration of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19), with a view to continuing to support financing, mainly of firms, on June 18th. 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 shows weakness further recently, especially in service spending.

  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 0.8% in April from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that real consumption expenses increased by 0.1% from the previous month in April. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value decreased by 4.6% from the previous month in April.

  Looking at the background of consumption trends, real wage income of employees is showing movements of picking up. Meanwhile, consumer confidence appears to be pausing for picking up recently.

  Based on these results, private consumption shows weakness further recently, especially in service spending. 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 effects of infectious diseases.

Business investment is picking up .

  Business investment is picking up. The Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey, including software investment) show that business investment decreased in the January-March quarter of 2021 by 0.4% from the previous quarter. By industry, business investment increased for manufacturers by 0.5% from the previous quarter and decreased for non-manufacturers by 0.9%.

  Capital Goods Shipments and Imports, supply-side statistics are increasing recently.

  According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (March survey) and the Business Outlook Survey (April-June survey) planned business investment for all industries in fiscal year 2021 is expected to increase. In the BOJ Tankan, firms' judgment on production capacity is improving, although excessive production capacity remains, mainly among manufacturers. The figures for Orders Received for Machinery, a leading indicator, appear to be pausing for picking up. The planned amount of construction shows movements of picking up.

  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 has shown a steady undertone.

  Housing construction has shown a steady undertone. Construction of owned houses is flat. Construction of houses for rent has shown a steady undertone. Construction of houses for sale is almost flat. Total number of sales of condominiums in the Tokyo metropolitan area has been showing movements of picking up recently.

  As for short-term prospects, housing construction is expected to show steady movements.

Public investment holds firm at a high level.

  Public investment holds firm at a high level. The amount of public construction completed in April decreased by 2.1% from the previous month, the amount of contracted public works in May increased by 15.0% from the previous month, and the amount of public works orders received in April increased by 21.8% 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 continue to increase moderately. Imports show movements of picking up. The balance of goods and services is in near equilibrium.

  Exports continue to increase moderately. By region, exports to Asia are increasing. Exports to the U.S., the EU and other regions are almost flat. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in May decreased by 99.6% from 2019. Concerning short-term prospects, exports are expected to continue to be on an upward trend, supported by the improvement in overseas economies. However, full attention should be given to the risks of overseas economies due to the re-spread of infections.

  Imports show movements of picking up. By region, imports from Asia, the U.S. and the EU show movements of picking up. As for short-term prospects, imports are expected to pick up. However, full attention should be given to effects of infectious diseases.

  The balance of goods and services is in near equilibrium. The surplus in the balance of trade in April decreased, 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 increased by 2.9% from the previous month in April. The Indices of Industrial Inventories decreased by 0.1% from the previous month in April. The Survey of Production Forecast in Manufacturing expects a decrease of 1.7% in May, and an increase of 5.0% in June.

  By industry, transport equipment is in a weak tone. Production machinery is increasing. Electronic parts and devices are increasing.

  As for short-term prospects, production is expected to continue to pick up. However, full attention should be given to the effects of the shortage of semiconductors and the downside risks of overseas economies.

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 appear to be pausing for picking up, while some severe aspects still remain.The number of corporate bankruptcies is decreasing.

  Corporate profits are picking up as a whole, while weakness is seen in non-manufacturers 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 2021 increased by 26.0% from the previous year and increased by 5.6% from the previous quarter. By industry, manufacturers saw an increase of 63.2% in corporate profits from the previous year, and non-manufacturers saw an increase of 10.9%. By size of company, large and medium-sized companies saw an increase of 41.2% from the previous year, and small companies saw an increase of 1.6%.

  Firms' judgments on current business conditions appear to be pausing for picking up, while some severe aspects still remain. The BOJ Tankan (March 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 June, is slightly 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 is decreasing.

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 2.8% in April, an increase of 0.2 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 has been showing movements of picking up. The number of new job offers and the active job openings to applicants ratio are almost flat recently. Overtime hours worked in the manufacturing industry are picking up.

  As for the movement of wages, contractual cash earnings and the total amount of cash earnings are showing movements of picking up. These results show that real wage income of employees is showing movements of picking up.

  According to the BOJ Tankan (March survey), firms' judgment on current employment conditions shows that the sense of a labor shortage remains strong in all industries, as manufacturers also began to feel a sense of shortage.

  Moreover, the daily number of active job openings to applicants and the employment situation in the private sector remain at a low level, although they have been showing movements of 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. Consumer prices are flat.

  Producer prices are rising.

  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, etc.

  According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 74.9% in May, a decrease of 1.1 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, etc.

As for stock prices, after rising from the 28,500-yen level to the 29,400-yen level, the Nikkei Stock Average declined to the 28,000-yen level, and thereafter rose to the 28,800 level. The yen against the U.S. dollar (inter-bank spot rate) moved in the direction of depreciation from the 109-yen level to the 110-yen level.