Monthly Economic ReportExecutive Summary( Oct 2021 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy remains in picking up, although the pace has weakened in a severe situation due to the Novel Coronavirus.
- Private consumption shows weakness further.
- Business investment is picking up.
- Exports are increasing at a slower pace.
- Industrial production is picking up, although some weakness is seen recently.
- Corporate profits are picking up, although some weaknesses remain 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 job offers, while weakness remains, due to the influence of the infectious disease.
- Consumer prices show steady movements recently.
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 thorough measures against infectious diseases, and accelerating vaccinations. However, full attention should be given to the further increase in downside risks due to negative effects through the supply chains. Also attention should be given to situation in domestic and overseas infections and 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. In order to extricate Japan from deflation, bold monetary policy, flexible fiscal policy, and the promotion of growth strategies will be engaged in.
The Government lifted the declaration of a state of emergency in 19 prefectures and also lifted all priority measures to prevent the spread of disease in 8 prefectures on September 30th. However, in anticipation of various situations, the Government will enhance medical systems as well as promote vaccinations and pharmaceutical treatments. In addition, the Government will provide economic support to those impacted by restrictions on flow of people. At the same time, the Government will work to bring socio-economic activities back to near normalcy as soon as possible while exploiting vaccination certificates and other measures.
The Government will develop a new economic stimulus package to address these issues seamlessly, to take all possible measures to respond to the Novel Coronavirus, to trigger a new capitalism, whose concepts are a virtuous cycle of growth and distribution and developing a new post-COVID-19 society, and to ensure the safety and security of people. In the meantime, the Government continues to pay careful attention to the status of the infection and its impact on businesses and livelihoods, and implement necessary measures in a flexible manner through utilizing the reserve fund and others.
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.
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 2.0% in August from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that real consumption expenses decreased by 3.9% from the previous month in August. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value decreased by 4.1% from the previous month in August.
Looking at the background of consumption trends, real wage income of employees is almost flat recently. Consumer confidence is showing movements of picking up recently.
Based on these results, private consumption shows weakness further.
Concerning short-term prospects, the economy is expected to show movements of picking up while taking thorough measures against infectious diseases. However, full attention should be given to the situation of infections.
Business investment is picking up .
Business investment is picking up. The Quarterly Financial Statements Statistics of Corporations by Industry (April-June survey, including software investment) show that business investment increased in the April-June quarter of 2021 by 3.2% from the previous quarter. By industry, business investment increased for manufacturers by 3.9% from the previous quarter and increased for non-manufacturers by 2.8%.
Capital Goods Shipments and Imports, supply-side statistics, are increasing.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (September 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. The figures for Orders Received for Machinery, a leading indicator, show movements of 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 been showing movements of picking up recently.
Housing construction has been showing movements of picking up recently. Construction of owned houses has been showing movements of picking up recently. 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 in a weak tone recently, although the contract rate remains at around 70%.
As for short-term prospects, housing construction is expected to continue to show movements of picking up.
Public investment has been in a weak tone recently, although it remains at a high level.
Public investment has been in a weak tone recently, although it remains at a high level. The amount of public construction completed in July increased by 1.1% from the previous month, the amount of contracted public works in September decreased by 6.9% from the previous month, and the amount of public works orders received in August decreased by 6.7% from the previous month.
As for short-term prospects, public investment is expected to remain in a weak tone.
Exports are increasing at a slower pace. Imports are pausing recently. The balance of goods and services is in deficit.
Exports are increasing at a slower pace. By region, exports to Asia and the EU are almost flat. Exports to the U.S. are showing movements of picking up. Exports to other regions are in a weak tone recently. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in August decreased by 99.0% 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, attention should be given to the further downside risk of the supply restriction and the trends in raw material prices.
Imports are pausing recently. By region, imports from Asia and the U.S. are pausing recently. Imports from the EU are showing movements of picking up. As for short-term prospects, imports are expected to pick up. However, full attention should be given to the further downside risks due to negative effects through the supply chains.
The balance of goods and services is in deficit.
The balance of trade in August turned to negative, as import values increased. The deficit in the balance of services decreased.
2. Corporate activities and employment
Industrial production is picking up, although some weakness is seen recently.
Industrial production is picking up, although some weakness is seen recently. The Indices of Industrial Production decreased by 3.2% from the previous month in August. The Indices of Industrial Inventories decreased by 0.3% from the previous month in August. The Survey of Production Forecast in Manufacturing expects an increase of 0.2% in September, and an increase of 6.8% in October.
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 infections on the supply chains and the effects of the semiconductor shortage, as well as the downside risks of overseas economies.
Corporate profits are picking up, although some weaknesses remain 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. The number of corporate bankruptcies is decreasing.
Corporate profits are picking up, although some weaknesses remain in non-manufacturers due to the influence of the infectious disease. According to the Quarterly Financial Statements Statistics of Corporations by Industry (April-June survey), corporate profits during the April-June quarter of 2021 increased by 93.9% from the previous year and increased by 1.8% from the previous quarter. By industry, manufacturers saw an increase of 159.4% in corporate profits from the previous year, and non-manufacturers saw an increase of 64.2%. By size of company, large and medium-sized companies saw an increase of 74.1% from the previous year, and small companies saw an increase of 278.6%. According to the BOJ Tankan (September survey), in fiscal year 2021, sales are expected to increase by 6.1% in the first half of the year and are expected to increase by 0.7% in the second half from the previous year. Current profits are expected to increase by 43.5% in the first half and decrease by 3.9% in the second half from the previous year.
Firms' judgments on current business conditions show movements of picking up, although some severe aspects remain. The BOJ Tankan (September 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 December, is slightly more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (September 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 job offers, while weakness remains, due to the influence of the infectious disease.
The total unemployment rate was 2.8% in August, 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 almost flat. The number of new job offers and the active job openings to applicants ratio are almost flat. 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 almost flat recently.
According to the BOJ Tankan (September survey), firms' judgment on current employment conditions shows that the sense of a labor shortage is strong.
Moreover, the daily number of active job openings to applicants and the employment situation in the private sector continue to show movements of picking up, although they remain at a low level.
Based on these results, employment situation shows steady movements in some components such as job offers, 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 show steady movements recently.
Producer prices are rising.
Consumer prices, in terms of general, excluding fresh food and energy, show steady movements recently 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 82.5% in September, an increase of 4.0 percentage points from the previous month.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to continue to show steady movements for the time being, on the basis of excluding special factors in the form of policy measures, etc.
As for stock prices, after declining from the 30,500-yen level to the 27,500-yen level, the Nikkei Stock Average rose to the 28,100-yen 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 113-yen level.