Monthly Economic ReportExecutive Summary( Mar 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 at a slower pace recently.
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 movements of picking up, 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 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. However, full attention should be given to the movement of infections 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'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 had lifted the state of emergency in 4 prefectures which had been extended the duration for two weeks on March 21st. The Government will thoroughly continue to implement measures prioritizing prevention of the re-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 " 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 swifty implent the "Emergency Support Measures for Non-Permament Workers and Others" compiled on March 16th. 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 implemented measures for further effective and sustainable monetary easing with a view to achieveing　the price stability target of two percent on March 19th. 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 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 3.0% in January from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that real consumption expenses decreased by 7.3% from the previous month in January. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value decreased by 1.7% from the previous month in January.

Looking at the background of consumption trends, real wage income of employees and consumer confidence are showing movements of picking up recently.

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 effects 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 (October-December survey, including software investment) show that business investment decreased in the October-December quarter of 2020 by 0.3% from the previous quarter. By industry, business investment decreased for manufacturers by 2.3% from the previous quarter and increased for non-manufacturers by 0.7%.

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) and the Business Outlook Survey (January-March 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. According to the Business Outlook Survey (January-March survey), planned business investment in fiscal year 2021 is expected to increase. 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 shows movements of picking up. 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 January decreased by 1.6% from the previous month, the amount of contracted public works in February decreased by 12.3% from the previous month, while the amount of public works orders received in January increased by 23.5% 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 at a slower pace recently. Imports show movements of picking up. The balance of goods and services is in surplus.

Exports are increasing at a slower pace recently. By region, exports to Asia are increasing. Exports to the U.S. have been in a weak tone recently. Exports to the EU are on a decline recently. Exports to other regions are almost flat. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in February decreased by 99.3%. 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 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 effects of infectious diseases.

The balance of goods and services is in surplus. The surplus in the balance of trade in January decreased, as import 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 4.3% from the previous month in January. The Indices of Industrial Inventories was at the same level as the previous month in January. The Survey of Production Forecast in Manufacturing expects an increase of 2.1% in February, and a decrease of 6.1% in March.

By industry, transport equipment is flat recently. Production machinery is picking up. 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 risks of overseas economies due to the re-spread of infections.

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 show movements of picking up, although some severe aspects remain.

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 (October-December survey), corporate profits during the October-December quarter of 2020 decreased by 0.7% from the previous year and increased by 15.5% from the previous quarter. By industry, manufacturers saw an increase of 21.9% in corporate profits from the previous year, and non-manufacturers saw a decrease of 11.2%. By size of company, large and medium-sized companies saw a decrease of 9.4% from the previous year, and small companies saw an increase of 24.6%. 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.

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 2.9% in January, a decrease of 0.1 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 has been showing movements of picking up. The number of new job offers and the active job openings to applicants ratio are showing movements of picking up 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 shows steady movements recently. 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, although they have been showing movements of picking up recently.

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. Consumer prices are flat.

Producer prices are rising moderately.

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 69.8% in February, an increase of 4.4 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 30,100-yen level to the 28,700-yen level, the Nikkei Stock Average rose to the 30,200-yen level, and thereafter declined to the 29,700-yen level. The yen against the U.S. dollar (inter-bank spot rate) moved in the direction of depreciation from the 105-yen level to the 109-yen level.

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