Monthly Economic ReportExecutive Summary( jan 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 in part.
- Private consumption is picking up.
- Business investment appears to be pausing for picking up.
- Export appears to be pausing for picking up recently.
- Industrial production shows signs of picking up.
- Corporate profits are improving as a whole. Firms' judgments on current business conditions are improving.
- The employment situation shows movements of improvement.
- Consumer prices have been rising moderately recently.
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 Break Free from Deflation: Toward New Stage of the Japanese Economy”(Nov 2nd , Cabinet decision) and the FY2023 supplementary budget and will also work for early passage of the FY2024 budget and the related bills. 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, 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
Private consumption is picking up.
According to Quarterly Estimates of GDP for July-September 2023 (Second Preliminary Estimates), the real term of private consumption decreased by 0.2% from the previous quarter. According to Consumption Trend Index (CTI), the real term of Total Consumption Trend Index (CTI macro) increased by 0.0% from the previous month in November.
As for each index, looking at Family Income and Expenditure Survey, which comprises demand-side statistics, real consumption expenses decreased by 1.0% from the previous month in November. Looking at Current Survey of Commerce, which comprises sales-side statistics, the retail sales value increased by 1.1% from the previous month in November.
Looking at the background of consumption trends, real wage income of employees has appeared to be pausing for picking up recently. Consumer confidence is picking up.
Moreover, based on the interview results, new automobile sales have been in a weak tone recently due to the impact of the production/shipment suspension at some manufacturers. Home appliance sales are almost flat. Travel is picking up. Eating-out is increasing moderately.
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 appears to be pausing for picking up.
Business investment appears to be pausing for picking up. The Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey, including software investment) show that business investment increased in the July-September quarter of 2023 by 1.4% from the previous quarter. By industry, business investment decreased for manufacturers by 0.4% from the previous quarter and increased for non-manufacturers by 2.4%.
Capital Goods Shipments and Imports, which comprise supply-side statistics on investment in machinery and equipment, appear to be pausing for picking up. Software investment is increasing.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (December survey), planned business investment for all industries in fiscal year 2023 is expected to increase. According to the BOJ Tankan (December 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 September survey (+2), while the DI was -2 for all industries, including non-manufacturers, showing that the sense of insufficient capacity increased by 1 point from the September survey (-1). The figures for Orders Received for Machinery, a leading indicator, are almost flat. The planned amount of construction shows movements of picking up.
As for short-term prospects, business investment is expected to pick up, 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 in a weak tone recently. Construction of houses for rent is flat. Construction of houses for sale is in a weak tone. 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 November decreased by 0.6% from the previous month, the amount of contracted public works in December increased by 9.2% from the previous month, and the amount of public works orders received in November increased by 23.0% 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 recently. Imports are almost flat. The balance of goods and services is in deficit.
Export appears to be pausing for picking up recently. By region, exports to Asia have shown movements of picking up recently. Exports to the U.S are picking up. Exports to the EU have been in a weak tone recently. Exports to other regions are almost flat. 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 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 November increased, as export values decreased to a larger extent than import values. The balance of services is in deficit.
2. Corporate activities and employment
Industrial production shows signs of picking up.
Industrial production shows signs of picking up. The Indices of Industrial Production decreased by 0.9% from the previous month in November. The Indices of Industrial Inventories remained flat from the previous month in November. The Survey of Production Forecast in Manufacturing expects an increase of 6.0% in December, and a decrease of 7.2% in January.
By industry, transport equipment has shown a steady undertone, though there are concerns regarding the impact of the production/shipment suspension at some manufacturers. Production machinery is almost flat. Electronic parts and devices are showing movements of picking up.
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. However, for the time being, there are concerns that production activity will be depressed due to the impact of the production/shipment suspension at some manufacturers.
Tertiary industry activity is picking up.
Corporate profits are improving as a whole. Firms' judgments on current business conditions are improving. 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 (July-September survey), corporate profits during the July-September quarter of 2023 increased by 20.1% from the previous year and increased by 0.8% from the previous quarter. By industry, manufacturers saw a decrease in corporate profits of 0.9%, and non-manufacturers saw an increase of 40.0%. By size of company, large and medium-sized companies saw an increase of 18.3% from the previous year, and small companies saw an increase of 26.8%. According to the BOJ Tankan (December survey), in fiscal year 2023, sales are expected to increase by 3.5% in the first half of the year and are expected to increase by 1.6% in the second half from the previous year. Current profits are expected to increase by 11.0% in the first half and decrease by 3.9% in the second half from the previous year.
Firms' judgments on current business conditions are improving. The BOJ Tankan (December 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 March, is slightly more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (December survey), current and prospective business conditions both rose.
The number of corporate bankruptcies appears to be increasing. The number of corporate bankruptcies was 807 in November and 810 in December. Total liabilities were 94.8 billion yen in November and 103.2 billion yen in December.
The employment situation shows movements of improvement.
The total unemployment rate was 2.5% in November, the same level as 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 decreased.
As for the movement of wages, contractual cash earnings and the total amount of cash earnings are increasing. Real wage income of employees has appeared to be pausing for picking up recently.
According to the BOJ Tankan (December survey), DI for firms' judgment on current employment conditions was -35, showing that the sense of a labor shortage increased by 2 points from the September survey (-33).
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 recently.
Producer prices are flat.
Consumer prices, in terms of general, excluding fresh food and energy, have been rising moderately recently on the basis of excluding special factors in the form of policy measures, etc.
Consumer prices, in terms of general, excluding fresh food (referred to as "core") have been rising moderately recently.
According to the Monthly Consumer Confidence Survey (multi-person households), as for the ratio of households expecting prices to rise a year ahead, 14.3% expected a rise of less than 2% (14.0% in the previous month), 35.1% expected a rise of 2 to 5% (33.0% in the previous month), and 41.4% expected a rise of 5% or more (44.6% in the previous month) in December.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to rise moderately 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 33,600-yen level to the 36,500-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of appreciation from the 143-yen level to the 141-yen level, moved in the direction of depreciation to the 148-yen level.