Monthly Economic ReportExecutive Summary( Sep 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 continue to increase moderately.
  • 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 measures to prevent the spread of infectious diseases, and accelerating vaccinations. However, full attention should be given to the further increase in downside risks due to the situation of infections in domestic and overseas and negative effects through the supply chains. 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 will make intensive investments in four issues, green and digital fields, creation of vibrant communities, and countermeasures against the declining birthrate, and will bring solutions to long-standing problems and will achieve a powerful growth, based on the "Basic Policies for Economic and Fiscal Management and Reform 2021"and so on .

  The Government decided to implement the state of emergency measures in designate 19 prefectures and priority measures such as for prevention of the spread of disease in designate 8 prefectures until September 30, and will proceed with countermeasures under three pillars; enhancement of medical systems, thorough implementation of infection prevention measures, and vaccinations. The Government will take all possible intensive and efficient support measures for economic impact. Considering the progress of vaccination, the Government will promote national discussion and proceed with both infection prevention measures and efforts to restore daily life. 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 according to circumstances and conduct flexible macroeconomic policy management to the self-sustaining economic growth without hesitation, while paying careful attention to the status of the disease and the economic impact.

  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.), increased by 0.2% in July from the previous month. As for recent trends in each index, Family Income and Expenditure Survey shows that real consumption expenses decreased by 0.9% from the previous month in July. Looking at Current Survey of Commerce, sales-side statistics, the retail sales value increased by 1.1% from the previous month in July.

  Looking at the background of consumption trends, real wage income of employees is almost flat recently. Consumer confidence appears to be pausing for picking up recently.

  Based on these results, private consumption shows weakness further.

  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 increase in downside risks due 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) (June survey) and the Business Outlook Survey (July-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 holds firm at a high level.

  Public investment holds firm at a high level. The amount of public construction completed in June increased by 1.2% from the previous month, the amount of contracted public works in August increased by 0.7% from the previous month, and the amount of public works orders received in July decreased by 6.7% 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 are pausing recently. The balance of goods and services is in near equilibrium.

  Exports continue to increase moderately. By region, exports to Asia are increasing at a slower pace recently. Exports to the U.S. is showing movements of picking up recently. Exports to the EU and other regions are almost flat. As for effects of the infectious disease on inbound tourism, the number of foreign tourists in July decreased by 98.3% 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 risk of the re-spread of infections in some regions.

  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 increase in downside risks due to the situation of infections and effects through the supply chains.

  The balance of goods and services is in near equilibrium.

  The surplus in the balance of trade in July increased, as export values increased. The deficit in the balance of services increased.


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 1.5% from the previous month in July. The Indices of Industrial Inventories decreased by 0.7% from the previous month in July. The Survey of Production Forecast in Manufacturing expects an increase of 3.4% in August, and an increase of 1.0% in September.

  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 (June survey), in fiscal year 2021, sales are expected to increase by 5.6% in the first half of the year and are expected to increase by 0.3% in the second half from the previous year. Current profits are expected to increase by 27.8% in the first half and decrease by 3.4% 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 (June 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 September, is slightly more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (August 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 job offers, while weakness remains, due to the influence of the infectious disease.

  The total unemployment rate was 2.8% in July, 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 is almost flat recently. 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 (June 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 78.5% in August, a decrease of 0.8 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, the Nikkei Stock Average rose from the 27,600-yen level to the 30,600-yen level. The yen against the U.S. dollar (inter-bank spot rate) moved from the 109-yen level to the 110-yen level.