Monthly Economic ReportExecutive Summary( july 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 are almost flat.
- Industrial production shows movements of picking up recently.
- 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.
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 continued high interest rate levels in the U.S. and Europe, and the lingering stagnation of the real estate market in China. Also, full attention should be given to price increases, the situation in the Middle East and fluctuations in the financial and capital markets.
(Policy stance)
Based on the "Basic Policies on Economic and Fiscal Management and Reform 2024: Achieving a Growth-Oriented Economy Driven by Wage Increases and Investment" and other documents, the Government will make effort to achieve wage increases that exceed price increases, and to solve social challenges and improve productivity through public-private investment.
To this end, the Government will swiftly and steadily implement the “Comprehensive Economic Measures for Completely Overcoming Deflation”, the FY2023 supplementary budget and the FY2024 budget. Moreover, pensioners and small and medium enterprises are facing difficulty in the current price increases, and the Government will take a two-step approach with measures that can be immediately implemented.
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, by 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 measures, the Government and the Bank of Japan will completely overcome deflation and achieve transition to a new growth-oriented economic stage.
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 January-March 2024 (Second Preliminary Estimates (Revised)), the real term of private consumption decreased by 0.7% 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 May.
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) increased by 0.5% from the previous month in May. Looking at Current Survey of Commerce, which comprises supply-side statistics, the retail sales value increased by 1.6% from the previous month in May.
Looking at the background of consumption trends, real wage income of employees is showing movements of picking up. Consumer confidence has appeared to be pausing for improving recently.
Moreover, based on the interview results, new automobile sales are picking up. 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. However, attention should be given to the trends in consumer confidence.
Business investment shows movements of picking up.
Business investment shows movements of picking up. According to the Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey), business investment, on the basis of including software investment, increased in the October-December quarter of 2023 by 10.7% from the previous quarter, but decreased in the January-March quarter of 2024 by 4.2%. By industry, business investment decreased for manufacturers by 3.3% from the previous quarter and decreased for non-manufacturers by 4.7%. On the basis of excluding software investment, business investment increased in the October-December quarter of 2023 by 8.2% from the previous quarter, but decreased in the January-March quarter of 2024 by 0.5%.
Capital Goods Shipments and Imports (excluding transport equipment), which comprise supply-side statistics on investment in machinery and equipment, are showing movements of picking up. Software investment is increasing.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (June survey), planned business investment for all industries in fiscal year 2024 is expected to increase. According to the BOJ Tankan (June 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 March survey (+2), while the DI was -1 for all industries, including non-manufacturers, showing that the sense of insufficient capacity was at the same level as the March survey (-1). The figures for Orders Received for Machinery, a leading indicator, have been showing movements of picking up 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 and 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 has been in a weak tone recently.
As for short-term prospects, housing construction is expected to remain in a weak tone for the time being.
Public investment shows steady performance.
Public investment shows steady performance. The amount of public construction completed in May increased by 0.6% from the previous month, the amount of contracted public works in June decreased by 3.1% from the previous month, and the amount of public works orders received in May decreased by 24.0% 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 are almost flat. Imports are almost flat. 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. are almost flat, partly due to such factors as the domestic supply of automobiles. Exports to the EU have been showing weakness recently, partly due to such factors as the domestic supply of automobiles. 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 are almost flat. Imports from the U.S. have appeared to be pausing for picking up recently. Imports from the EU have been showing movements of picking up recently. Concerning short-term prospects, imports are expected to pick up.
The balance of goods and services is in deficit.
The deficit in the balance of trade in May increased, as import values increased to a larger extent than export values. The balance of services is in deficit.
2. Corporate activities and employment
Industrial production shows movements of picking up recently.
Industrial production shows movements of picking up recently. The Indices of Industrial Production increased by 3.6% from the previous month in May. The Indices of Industrial Inventories increased by 0.9% from the previous month in May. The Survey of Production Forecast in Manufacturing expects a decrease of 4.8% in June, and an increase of 3.6% in July.
By industry, transport equipment has been showing movements of picking up recently, although it is affected by suspension of production and shipment by some automotive manufacturers. Production machinery has been showing movements of picking up recently. Electronic parts and devices are picking up.
As for short-term prospects, production is expected to pick up, though attention should be given to the impact of the production/shipment suspension at some automotive manufacturers and the impact of the slowing down of overseas economies and other factors.
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 (January-March survey), corporate profits during the January-March quarter of 2024 increased by 15.1% from the previous year and increased by 6.7% from the previous quarter. By industry, manufacturers saw an increase of 23.0% in corporate profits from the previous year, and non-manufacturers saw an increase of 11.5%. By size of company, large and medium-sized companies saw an increase of 13.4% from the previous year, and small companies saw an increase of 18.8%. According to the BOJ Tankan (June survey), in fiscal year 2024, sales are expected to increase by 2.1% in the first half of the year and are expected to increase by 1.7% in the second half from the previous year. Current profits are expected to decrease by 11.8% in the first half and decrease by 2.9% in the second half from the previous year.
Firms' judgments on current business conditions are improving. The BOJ Tankan (June survey) revealed that firms' judgment on current business conditions remained flat 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 (June survey), current business conditions fell, while prospective business conditions rose.
The number of corporate bankruptcies appears to be increasing. The number of corporate bankruptcies was 1,009 in May and 820 in June. Total liabilities were 136.7 billion yen in May and 109.8 billion yen in June.
The employment situation shows movements of improvement.
The total unemployment rate was 2.6% in May, the same level as the previous month. The labor force, and the number of employed persons increased. The number of unemployed persons decreased.
The employment rate has been almost flat recently. 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 (June survey), DI for firms' judgment on current employment conditions, which shows firm's sense of a labor shortage, was -35 for all industries in June, showing that the sense of a labor shortage decreased by 1 point from the March survey (-36). The DI was -21 for manufacturers, showing that the sense of a labor shortage decreased by 1 point from the March survey (-22), and the DI was -45 for non-manufacturers, showing that the sense of a labor shortage was at the same level as the March survey (-45).
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 have been rising moderately. Consumer prices have been rising moderately.
Producer prices have been rising moderately.
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, 12.4% expected a rise of less than 2% (11.8% in the previous month), 34.6% expected a rise of 2 to 5% (34.8% in the previous month), and 46.8% expected a rise of 5% or more (46.9% in the previous month) in June.
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 rising from the 39,500-yen level to the 42,200-yen level, the Nikkei Stock Average declined to the 39,500-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 160-yen level to the 161-yen level, moved in the direction of appreciation to the 156-yen level.