Monthly Economic ReportExecutive Summary( aug 2023 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is recovering at a moderate pace.
- Private consumption is picking up.
- Business investment is picking up.
- Exports show movements of picking up recently.
- Industrial production shows signs of picking up.
- Corporate profits are improving moderately as a whole. Firms' judgments on current business conditions are picking up.
- The employment situation shows movements of improvement.
- Consumer prices are rising.
Concerning short-term prospects, the economy is expected to continue recovering at a moderate pace with the improving employment and income situation, supported by the effects of the policies. However, slowing down of overseas economies is downside risk of the Japanese economy, including the effects of global monetary tightening and the concern about the prospect of the Chinese economy. Also, full attention should be given to price increases and fluctuations in the financial and capital markets.
(Policy stance)
Based on the "Basic Policies for Economic and Fiscal Management and Reform 2023", the Government will accelerate the initiative of the New Form of Capitalism to expand future investment and realize structural wage increases, in order to expand more positive trends such as the highest level of wage increases in this 30 years and high investment motivation in the private sector.
The Government will swiftly and steadily implement the “Comprehensive Economic Measures for Overcoming Price Increases and Revitalizing the Economy” , the FY2022 second supplementary budget, additional measures compiled at the “Headquarters for Comprehensive Measures on Prices, Wages, and Livelihoods” , and the FY2023 budget. Moreover, the Government will continue to respond with flexibility based on price and economic trends, considering countermeasures against rising fuel oil prices.
The Government will aiming for realization of "virtuous circle of growth and distribution" which is backed by an increase in growth potential and a broad increases in household income, by linking it to a "virtuous circle of wages and prices" with wage increases and securing appropriate price transfers and markups for costs, as well as through continuous expansion of domestic investment by public and private sector's partnership in the areas of human resources, green and economic security which would easily be underinvested if simply left to markets principle.
The Government expects the Bank of Japan to achieve the price stability target of two percent in a sustainable and stable manner, accompanied by wage increases, in light of economic activity, prices and financial conditions.
Through these measures, the Government will promote bold monetary policy, flexible fiscal policy, and a growth strategy that stimulates private investment in an integrated manner, while fostering widespread recognition that will not fall back into deflation, and leading to an end to deflation through these policy initiatives.
Detailed explanations
1. Demand trends such as consumption and investment
Real GDP (gross domestic product) in the April-June quarter of 2023 increased by 1.5% on a quarterly basis (at an annual rate of 6.0%), posting positive growth for the third consecutive quarter. Nominal GDP increased by 2.9% on a quarterly basis, posting positive growth for the third consecutive quarter.
Private consumption is picking up.
As for each index, looking at Family Income and Expenditure Survey, which comprises demand-side statistics, real consumption expenses increased by 0.9% from the previous month in June. Looking at Current Survey of Commerce, which comprises sales-side statistics, the retail sales value decreased by 0.6% from the previous month in June.
Looking at the background of consumption trends, real wage income of employees has been showing movements of picking up recently. Consumer confidence is picking up.
Based on these results, private consumption is picking up.
Concerning short-term prospects, consumption is expected to continue to pick up, supported by the improvement in the employment and income situations.
Business investment is picking up.
Business investment is 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 2023 by 2.3% from the previous quarter. By industry, business investment increased for manufacturers by 4.8% from the previous quarter and increased for non-manufacturers by 1.0%.
Capital Goods Shipments and Imports, which comprise supply-side statistics, appear to be pausing for 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 2023 is expected to increase. In BOJ Tankan, firms' judgment on production capacity indicates their sense of shortage on the whole, although feelings of excess can be seen among manufacturers. The figures for Orders Received for Machinery and the planned amount of construction, both leading indicators, are almost flat.
As for short-term prospects, business investment is expected to continue to be on a pickup trend, mainly reflecting steady corporate profits.
Housing construction is almost flat.
Housing construction is almost flat. Construction of owned houses is in a weak tone. Construction of houses for rent has shown a steady undertone. Construction of houses for sale is almost flat. 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 remain flat for the time being.
Public investment shows steady performance.
Public investment shows steady performance. The amount of public construction completed in June decreased by 5.0% from the previous month, the amount of contracted public works in July decreased by 4.3% from the previous month, and the amount of public works orders received in June decreased by 11.2% 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 show movements of picking up recently. Imports are almost flat. The balance of goods and services is in deficit.
Exports show movements of picking up recently. By region, exports to Asia and the U.S. have been showing movements of picking up recently. Exports to the EU are picking up. Exports to other regions show movements of picking up. As for short-term prospects, exports are expected to continue to show movements of picking up. However, attention should be given to the downside risks of overseas economies.
Imports are almost flat. By region, imports from Asia and the U.S. are almost flat. Imports from the EU have been showing movements of picking up recently. Concerning short-term prospects, imports are expected to gradually show movements of picking up.
The balance of goods and services is in deficit.
The deficit in the balance of trade in June decreased, as export values increased. The deficit in the balance of services decreased.
2. Corporate activities and employment
Industrial production shows signs of picking up.
Industrial production shows signs of picking up. The Indices of Industrial Production increased by 2.4% from the previous month in June. The Indices of Industrial Inventories increased by 0.2% from the previous month in June. The Survey of Production Forecast in Manufacturing expects a decrease of 0.2% in July, and an increase of 1.1% in August.
By industry, transport equipment is picking up. Production machinery is almost flat. Electronic parts and devices have been flat recently.
As for short-term prospects, production is expected to pick up, though attention should be given to the impact of the slowing down of overseas economies and other factors.
Corporate profits are improving moderately as a whole. Firms' judgments on current business conditions are picking up. The number of corporate bankruptcies appears to be increasing.
Corporate profits are improving moderately as a whole. During the April-June quarter of 2023, the current profits of the listed companies increased from the previous year for manufacturers and decreased for non-manufacturers. According to the BOJ Tankan (June survey), in fiscal year 2023, sales are expected to increase by 2.4% in the first half of the year and are expected to increase by 1.3% in the second half from the previous year. Current profits are expected to decrease by 10.0% in the first half and decrease by 1.0% in the second half from the previous year.
Firms' judgments on current business conditions are picking up. 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 (July survey), current business conditions rose while prospective business conditions remained unchanged.
The number of corporate bankruptcies appears to be increasing.
The employment situation shows movements of improvement.
The total unemployment rate was 2.5% in June, 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 employment rate shows movements of improvement. The number of new job offers is almost flat. The active job openings to applicants ratio has been decreasing recently. The employment situation at private employment agencies is picking up. Overtime hours worked in the manufacturing industry increased.
As for the movement of wages, contractual cash earnings and the total amount of cash earnings are increasing. Real wage income of employees has been showing movements of picking up recently.
According to the BOJ Tankan (June survey), the DI for firms' judgment on current employment conditions was -32, the same level as the March survey (-32).
Based on these results, the employment situation shows movements of improvement.
As for short-term prospects of the employment situation, it is expected to improve.
3. Prices and the financial market
Producer prices are declining moderately. Consumer prices are rising.
Producer prices are declining moderately.
Consumer prices, in terms of general, excluding fresh food and energy, are rising 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 92.8% in July, a decrease of 0.4 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, on the basis of excluding special factors in the form of policy measures, etc.
As for stock prices, after rising from the 32,800-yen level to the 33,400-yen level, the Nikkei Stock Average declined to the 31,400-yen level, and thereafter rose to the 32,200-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of appreciation from the 140-yen level to the 139-yen level, moved in the direction of depreciation to the 146-yen level, and thereafter moved in the direction of appreciation to the 144-yen level.