Monthly Economic ReportExecutive Summary( May 2021 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy shows weakness in some components further, 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 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 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 towards prevention of the spread of the Novel Coronavirus.
The Government implements the state of emergency measures in designate 10 prefectures and priority measures such as for prevention of the spread of disease in designate 9 prefectures in accordance with the mended Act on Special Measures for Pandemic Influenza and New Infectious Diseases Preparedness and Response, and will thoroughly continue to 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, and will continue to implement necessary support measures in a timely manner through utilizing reserve fund while paying careful attention to the status of the disease and the economic impact.
The Government will decide the “Basic Policies for Economic and Fiscal Management and Reform 2021”, etc. by June, in order to build up a robust economy, through such measures as promoting green and digital fields and raising the revenues of people living in rural areas, with the post-COVID-19 era in mind, while prioritizing tackling of countermeasures against the Novel Coronavirus and vaccination, and to come up with solutions to long-standing issues, including countermeasures against the declining birthrate.
The Bank of Japan enhances monetary easing with a view to doing its utmost to support financing mainly 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 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.), increased by 1.8% in March from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that real consumption expenses increased by 7.2% from the previous month in March. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value increased by 1.2% from the previous month in March.
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 further increase in downside risks due to the spread of infectious diseases.
Business investment is picking up .
Business investment is picking up. 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 picking up.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (March survey), planned business investment for all industries in fiscal year 2020 is expected to decrease. Planned business investment in fiscal year 2021 is expected to increase. In the BOJ Tankan, firms' judgment on production capacity is improving, a lthough 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 is almost flat.
Housing construction is almost flat. Construction of owned houses is picking up. Construction of houses for rent has leveled off. Construction of houses for sale has been in a weak tone. 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 remain flat for the time being.
Public investment holds firm at a high level.
Public investment holds firm at a high level. The amount of public construction completed in March increased by 2.3% from the previous month, the amount of contracted public works in April decreased by 8.4% from the previous month, and the amount of public works orders received in March increased by 16.9% 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 surplus.
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 April 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 further increase in downside risks due to the spread of infectious diseases.
The balance of goods and services is in surplus. The balance of trade in March turned to surplus, 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 1.7% from the previous month in March. The Indices of Industrial Inventories increased by 0.4% from the previous month in March. The Survey of Production Forecast in Manufacturing expects an increase of 8.4% in April, and a decrease of 4.3% in May.
By industry, transport equipment is in a weak tone recently. 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. During the January-March quarter of 2021, the current profits of the listed companies increased from the previous year both for manufacturers and non-manufacturers. According to the BOJ Tankan (March survey), in fiscal year 2021, sales are expected to increase by 3.9% in the first half of the year and are expected to increase by 1.0% in the second half from the previous year. Current profits are expected to increase by 10.9% in the first half and increase by 6.7% in the second half from the previous year.
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 (April survey), current and prospective business conditions both fell.
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 2.6% in March, a decrease of 0.3 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons all decreased.
The number of employees has been showing movements of picking up. The number of new job offers is almost flat recently. The active job openings to applicants ratio is 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 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, 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. 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, etc. (including a decrease in telephone charges (mobile phone) in April 2021).
According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 76.0% in April, an increase of 4.7 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 29,000-yen level to the 29,500-yen level, the Nikkei Stock Average declined to the 27,400-yen level, and thereafter rose to the 28,300 level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 107-yen level to the 109-yen level, moved in the direction of appreciation to the 108-yen level.