Monthly Economic ReportExecutive Summary( jul 2022 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is picking up moderately.
- Private consumption is picking up moderately.
- Business investment shows movements of picking up.
- Exports are almost flat.
- Industrial production appears to be pausing for picking up.
- Corporate profits are improving as a whole, although some weaknesses remain. Firms' judgments on current business conditions appear to be pausing for picking up.
- The employment situation is picking up.
- Consumer prices are rising.
Concerning short-term prospects, the economy is expected to show movements of picking up, supported by the effects of the policies while all possible measures are being taken against infectious diseases, and economic and social activities proceed to normalization. However, full attention should be given to the downside risks due to fluctuations in the financial and capital markets amid global monetary tightening, rising raw material prices and supply-side constraints.
(Policy stance)
The Government will continue to maintain the framework of economic and fiscal management for joint promotion of bold monetary policies, flexible fiscal policies, and growth strategies that will encourage private investment. The macroeconomy will be managed flexibly without hesitation to achieve autonomous growth led by private demand, and to break away from deflation.
The Government will implement the “Economic Measures for Overcoming Coronavirus Infections and Opening Up a New Era”, the FY2021 supplementary budget, and the FY2022 budget swiftly and properly. Also, the Government will implement Comprehensive Emergency Measures to Counter Soaring Crude Oil and other Prices under the COVID-19 Pandemic and, at the Task Force on Prices, Wages, and Daily Living, will monitor the situation of prices and the economy, and work seamlessly to take swift and comprehensive measures tailored to the situation, while making flexible use of reserve funds.
In addition, the government will steadily implement policy measures that we have included in the vision and the action plan of a New Form of Capitalism and our Basic Policy on Economic and Fiscal Management and Reform 2022 ,which the Cabinet decided on June 7th, and then give concrete shape immediately to the comprehensive measures for advancing these initiatives and put into practice.
The Bank of Japan continues monetary easing with a view to doing its utmost to support financing mainly of small and medium-sized firms and maintaining stability in financial market. The Government expects the Bank of Japan to achieve the price stability target of two percent in a sustainable and stable manner in light of economic activity, prices and financial conditions.
Detailed explanations
1. Demand trends such as consumption and investment
Private consumption is picking up moderately.
As for each index, looking at Family Income and Expenditure Survey, which comprises demand-side statistics, real consumption expenses decreased by 1.9% from the previous month in May. Looking at Current Survey of Commerce, which comprises sales-side statistics, the retail sales value increased by 0.7% from the previous month in May.
Looking at the background of consumption trends, real wage income of employees is almost flat. Consumer confidence is showing signs of bottoming out.
Based on these results, private consumption is picking up moderately.
Concerning short-term prospects, the economy is expected to show movements of picking up while all possible measures are being taken against infectious diseases, and economic and social activities proceed to normalization.
Business investment shows movements of picking up.
Business investment shows movements of picking up. The Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey, including software investment) show that business investment increased in the January-March quarter of 2022 by 0.3% from the previous quarter. By industry, business investment increased for manufacturers by 1.7% from the previous quarter and decreased for non-manufacturers by 0.3%
Capital Goods Shipments and Imports, which comprise supply-side statistics, are showing movements of picking up.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (June survey),planned business investment for all industries in fiscal year 2022 is expected to increase. In the BOJ Tankan, firms' judgment on production capacity is almost flat. The figures for Orders Received for Machinery and the planned amount of construction, both leading indicators, show movements of picking up.
As for short-term prospects, business investment is expected to continue to be on a pickup trend, mainly reflecting the improvement of corporate profits.
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 and houses for sale has shown a steady undertone. In addition, the total number of sales of condominiums in the Tokyo metropolitan area is almost flat.
As for short-term prospects, housing construction is expected to show steady movements.
Public investment has shown a steady undertone.
Public investment has shown a steady undertone. The amount of public construction completed in May increased by 2.9% from the previous month, the amount of contracted public works in June increased by 7.7% from the previous month, and the amount of public works orders received in May decreased by 28.4% from the previous month.
As for short-term prospects, public investment, partly due to the effect of the supplementary budget, is expected to show steady performance.
Exports are almost flat. Imports show movements of picking up. The balance of goods and services is in deficit.
Exports are almost flat. By region, exports to Asia are almost flat. Exports to the U.S. and the EU show movements of picking up. Exports to other regions have been in a weak tone recently. As for the effects of the infectious disease on inbound tourism, the number of foreign tourists in June decreased by 95.8% from 2019. As for short-term prospects, exports are expected to pick up, mainly reflecting the improvement in Western economies. However, attention should be given to the downside risks due to supply-side constraints and other factors.
Imports show movements of picking up. By region, imports from Asia and the EU show movements of picking up. Imports from the U.S. are almost flat. Concerning short-term prospects, imports are expected to gradually show movements of picking up while all possible measures are being taken against infectious diseases, and economic and social activities proceed to normalization. However, attention should be given to the downside risks due to supply-side constraints and other factors.
The balance of goods and services is in deficit.
The deficit in the balance of trade in May increased, as import values increased. The deficit in the balance of services decreased.
2. Corporate activities and employment
Industrial production appears to be pausing for picking up.
Industrial production appears to be pausing for picking up. The Indices of Industrial Production decreased by 7.5% from the previous month in May. The Indices of Industrial Inventories decreased by 0.9% from the previous month in May. The Survey of Production Forecast in Manufacturing expects an increase of 12.0% in June, and an increase of 2.5% in July.
By industry, transport equipment is pausing for picking up. Production machinery and electronic parts and devices are growing at a slower pace.
As for short-term prospects, production is expected to pick up. However, attention should be given to the downside risks due to supply-side constraints and other factors.
Corporate profits are improving as a whole, although some weaknesses remain. Firms' judgments on current business conditions appear to be pausing for picking up. The number of corporate bankruptcies is almost flat.
Corporate profits are improving as a whole, although some weaknesses remain. According to the Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey), corporate profits during the January-March quarter of 2022 increased by 13.7% from the previous year and increased by 0.2% from the previous quarter. By industry, manufacturers saw an increase of 18.4% from the previous year, and non-manufacturers saw an increase of 10.9% from the previous year. By size of company, large and medium-sized companies saw an increase of 18.5% from the previous year, and small companies saw an increase of 3.1%. According to the BOJ Tankan (June survey), in fiscal year 2022, sales are expected to increase by 5.9% in the first half of the year and are expected to increase by 3.0% in the second half from the previous year. Current profits are expected to decrease by 1.5% in the first half and decrease by 5.6% in the second half from the previous year.
Firms' judgments on current business conditions appear to be pausing for picking up. The BOJ Tankan (June survey) revealed that firms'judgment on current business conditions rose for all enterprises in all industries. Firms'udgment 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 (June survey), current and prospective business conditions both fell.
The number of corporate bankruptcies is almost flat.
The employment situation is picking up.
The total unemployment rate was 2.6% in May, an increase of 0.1 percentage points from the previous month. The labor force and the number of employed persons decreased, while the number of unemployed persons increased.
The employment rate is picking up. The number of new job offers, the active job openings to applicants ratio, and overtime hours worked in the manufacturing industry are picking up.
As for the movement of wages, contractual cash earnings are increasing moderately. The total amount of cash earnings is almost flat. These results show that real wage income of employees is almost flat.
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 are picking up.
Based on these results, the employment situation is picking up.
As for short-term prospects of the employment situation, it is expected to continue to pick up.
3. Prices and the financial market
Producer prices are rising. Consumer prices are rising.
Producer prices are rising.
Consumer prices, in terms of general, excluding fresh food and energy, are rising.
According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 94.2% in June, a decrease of 0.2 percentage points from the previous month.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to continue rising for the time being.
As for stock prices, after rising from the 26,200-yen level to the 27,000-yen level, the Nikkei Stock Average declined to the 25,900-yen level, and thereafter rose to the 27,900-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 135-yen level to the 138-yen level, moved in the direction of appreciation to the 137-yen level.