Monthly Economic ReportExecutive Summary( apr 2024 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is recovering at a moderate pace, although it recently appears to be pausing.
- Private consumption appears to be pausing for picking up.
- Business investment shows movements of picking up.
- Exports appear to be pausing for picking up.
- Industrial production was on the way to picking up, but manufacturing activities have declined recently due to the effects of suspension of production and shipment by some automotive manufacturers.
- Corporate profits are improving as a whole. Firms’ judgments on current business conditions are improving. Some manufacturers are affected by the suspension of production and shipment by some automotive manufacturers.
- The employment situation shows movements of improvement.
- Consumer prices have been rising moderately.
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, the situation in the Middle East and fluctuations in the financial and capital markets. In addition, full attention should be given to the economic impact of the 2024 Noto Peninsula Earthquake.
(Policy stance)
The Government will accelerate the initiative of new capitalism to transform the economy from a cost-cutting economy that has been in place for 30 years to a growth-oriented economy driven by sustained wage increases and active investment.
To this end, the Government will swiftly and steadily implement the “Comprehensive Economic Measures for Completely Overcoming Deflation: Toward New Stage of the Japanese Economy”, the FY2023 supplementary budget and the FY2024 budget.
Moreover, based on the “Package to Support the Lives and Livelihoods of the Affected People”, reserve funds will be utilized to provide continuous support for the victims of the 2024 Noto Peninsula Earthquake, including the rebuilding of their lives and livelihoods, as well as for the reconstruction of the areas affected by this earthquake.
The Government expects the Bank of Japan to achieve the price stability target of two percent in a sustainable and stable manner, while confirming the virtuous cycle between wages and prices, through conducting appropriate monetary policy management in light of economic activity, prices and financial conditions.
The Government and the Bank will continue to work closely together to conduct flexible policy management in response to economic and price developments.
Through these managements, the Government and the Bank will foster widespread recognition among the public that there is no going back to deflation, and leading to an end to deflation. Then, the government will mobilize all possible policy measures to transform the Japanese Economy into a new growth-oriented economy.
Detailed explanations
1. Demand trends such as consumption and investment
Private consumption appears to be pausing for picking up.
According to Quarterly Estimates of GDP for October-December 2023 (Second Preliminary Estimates), the real term of private consumption decreased by 0.3% from the previous quarter. According to Consumption Trend Index (CTI), the real term of Total Consumption Trend Index (CTI macro) increased by 0.2% from the previous month in February.
As for each index, looking at Consumption Trend Index (CTI), which comprises demand-side statistics, the real value of Household Consumption Trend Index (CTI micro, total households) decreased by 0.8% from the previous month in February. Looking at Current Survey of Commerce, which comprises supply-side statistics, the retail sales value increased by 1.7% from the previous month in February.
Looking at the background of consumption trends, real wage income of employees is showing movements of picking up. Consumer confidence is improving.
Moreover, based on the interview results, new automobile sales are showing weakness due to the effects of suspension of production and shipment by some manufacturers. Home appliance sales and travel are almost flat. Eating-out is increasing moderately.
Based on these results, private consumption appears to be pausing for picking up.
Concerning short-term prospects, consumption is expected to pick up, supported by the improvement in the employment and income situations.
Business investment shows movements of picking up.
Business investment shows movements of picking up. The Quarterly Financial Statements Statistics of Corporations by Industry (October-December survey, including software investment) show that business investment increased in the October-December quarter of 2023 by 10.4% from the previous quarter. By industry, business investment increased for manufacturers by 11.7% from the previous quarter and increased for non-manufacturers by 9.6%.
Capital Goods Shipments and Imports (excluding transport equipment), which comprise supply-side statistics on investment in machinery and equipment, appear to be pausing for picking up. Capital Goods Shipments and Imports (including transport equipment) appear to be depressed due to the effects of suspension of production and shipment by some automotive manufacturers. Software investment is increasing.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (March survey), planned business investment for all industries in fiscal year 2023 is expected to increase. Planned business investment in fiscal year 2024 is expected to increase. According to the BOJ Tankan (March survey), DI for firms’ judgment on production capacity was +2 for manufacturers, showing that the sense of excessive capacity was at the same level as the December survey (+2), while the DI was -1 for all industries, including non-manufacturers, showing that the sense of insufficient capacity decreased by 1 point from the December survey (-2). The figures for Orders Received for Machinery, a leading indicator, have been in a weak tone recently. The planned amount of construction is on an upward trend.
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 in a weak tone.
Housing construction is in a weak tone. Construction of owned houses has been flat recently. Construction of houses for sale is in a weak tone. Construction of houses for rent is 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 in a weak tone for the time being.
Public investment holds firm.
Public investment holds firm. The amount of public construction completed in January increased by 2.6% from the previous month, the amount of contracted public works in March decreased by 10.1% from the previous month, and the amount of public works orders received in February increased by 6.8% 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 appear to be pausing for picking up. Imports have been in a weak tone recently. The balance of goods and services is in deficit.
Exports appear to be pausing for picking up. By region, exports to Asia appear to be pausing for picking up. Exports to the U.S are increasing. Exports to the EU are in a weak tone. Exports to other regions have been in a weak tone recently. As for short-term prospects, exports are expected to pick up, as overseas economies continue to pick up. However, attention should be given to the downside risks of overseas economies.
Imports have been in a weak tone recently. By region, imports from Asia have been in a weak tone recently. Imports from the U.S. have been showing movements of picking up recently. Imports from the EU were decreasing partly due to the effects of the Red Sea crisis on marine logistics, but they have been showing movements of picking up recently. Concerning short-term prospects, imports are expected to pick up. However, attention should be given to the effects of the Red Sea crisis on marine logistics and other factors.
The balance of goods and services is in deficit.
The deficit in the balance of trade in February increased, as import values increased while export values decreased. The balance of services is in deficit.
2. Corporate activities and employment
Industrial production was on the way to picking up, but manufacturing activities have declined recently due to the effects of suspension of production and shipment by some automotive manufacturers.
Industrial production was on the way to picking up, but manufacturing activities have declined recently due to the effects of suspension of production and shipment by some automotive manufacturers. The Indices of Industrial Production decreased by 0.6% from the previous month in February. The Indices of Industrial Inventories increased by 0.6% from the previous month in February. The Survey of Production Forecast in Manufacturing expects an increase of 4.9% in March and an increase of 3.3% in April.
By industry, transport equipment showed a steady undertone, but manufacturing activities have declined recently due to the effects of suspension of production and shipment by some automotive manufacturers. Production machinery is almost flat. Electronic parts and devices are picking up, although some impact from the 2024 Noto Peninsula Earthquake can be seen.
As for short-term prospects, production is expected to pick up as some automotive manufacturers resume manufacturing activities.
Tertiary industry activity is picking up.
Corporate profits are improving as a whole. Firms’ judgments on current business conditions are improving. Some manufacturers are affected by the suspension of production and shipment by some automotive manufacturers. The number of corporate bankruptcies appears to be increasing.
Corporate profits are improving as a whole. According to the Quarterly Financial Statements Statistics of Corporations by Industry (October-December survey), corporate profits during the October-December quarter of 2023 increased by 13.0% from the previous year and decreased by 2.6% from the previous quarter. By industry, manufacturers saw an increase of 19.9% in corporate profits from the previous year, and non-manufacturers saw an increase of 9.5%. By size of company, large and medium-sized companies saw an increase of 20.1%, and small companies saw a decrease of 7.3%. According to the BOJ Tankan (March survey), in fiscal year 2024, sales are expected to increase by 1.0% 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 decrease by 5.8% in the first half and increase by 0.3% in the second half from the previous year.
Firms’ judgments on current business conditions are improving. Some manufacturers are affected by the suspension of production and shipment by some automotive manufacturers. The BOJ Tankan (March survey) revealed that firms’ judgment on current business conditions deteriorated 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 (March survey), current and prospective business conditions both fell.
The number of corporate bankruptcies appears to be increasing. The number of corporate bankruptcies was 712 in February and 906 in March. Total liabilities were 139.5 billion yen in February and 142.2 billion yen in March.
The employment situation shows movements of improvement.
The total unemployment rate was 2.6% in February, an increase of 0.2 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons all increased.
The employment rate is increasing moderately. The number of new job offers and the active job openings to applicants ratio are almost flat. 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 is showing movements of picking up.
According to the BOJ Tankan (March survey), DI for firms’ judgment on current employment conditions, which shows firm’s sense of a labor shortage, was -36 for all industries in March, showing that the sense of a labor shortage increased by 1 point from the December survey (-35). The DI was -22 for manufacturers, showing that the sense of a labor shortage increased by 1 point from the December survey (-21), and the DI was -45 for non-manufacturers, showing that the sense of a labor shortage increased by 1 point from the December survey (-44).
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 flat. Consumer prices have been rising moderately.
Producer prices are flat.
Consumer prices, in terms of general, excluding fresh food and energy, have been rising moderately.
Consumer prices, in terms of general, excluding fresh food (referred to as “core”) have been rising moderately.
According to the Monthly Consumer Confidence Survey (multi-person households), as for the ratio of households expecting prices to rise a year ahead, 13.3% expected a rise of less than 2% (16.3% in the previous month), 38.3% expected a rise of 2 to 5% (37.5% in the previous month), and 40.8% expected a rise of 5% or more (37.7% in the previous month) in March.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to rise moderately for the time being.
As for stock prices, after declining from the 40,400-yen level to the 38,900-yen level, the Nikkei Stock Average rose to the 39,700-yen level, and thereafter declined to the 37,000 level. The yen against the U.S. dollar (inter-bank spot rate) moved in the direction of depreciation from the 151-yen level to the 154-yen level.