Monthly Economic ReportExecutive Summary( mar 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.
- 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”(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.
On March 19, the Bank of Japan decided to change its monetary policy framework. With the price stability target of 2 percent, the Bank will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool, in response to developments in economic activity and prices as well as financial conditions from the perspective of sustainable and stable achievement of the target.
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 will lead 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) decreased by 0.2% from the previous month in January.
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 0.3% from the previous month in January. Looking at Current Survey of Commerce, which comprises supply-side statistics, the retail sales value increased by 0.2% from the previous month in January.
Looking at the background of consumption trends, real wage income of employees has been showing movements of picking up recently. 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) (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, 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 and 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 February increased by 21.7% from the previous month, and the amount of public works orders received in January decreased by 19.3% 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 recently. Exports to the U.S are increasing. Exports to the EU are in a weak tone. 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 have been in a weak tone recently. By region, imports from Asia have been in a weak tone recently. Imports from the U.S. are almost flat. Imports from the EU have been decreasing recently partly due to the effects of the Red Sea crisis on marine logistics. 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 distribution and other factors.
The balance of goods and services is in deficit.
The deficit in the balance of trade in January decreased, as import values decreased to a larger extent than export values. 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 6.7% from the previous month in January. The Indices of Industrial Inventories decreased by 1.7% from the previous month in January. The Survey of Production Forecast in Manufacturing expects an increase of 4.8% in February, and an increase of 2.0% in March.
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, although production is expected to pick up as some automotive manufacturers resume manufacturing activities, it is being expected that production is depressed due to the effects of suspension of production and shipment for the time being.
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 (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 (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 (February survey), current and prospective business conditions both rose.
The number of corporate bankruptcies appears to be increasing. The number of corporate bankruptcies was 701 in January and 712 in February. Total liabilities were 79.1 billion yen in January and 139.5 billion yen in February.
The employment situation shows movements of improvement.
The total unemployment rate was 2.4% in January, a decrease of 0.1 percentage points from the previous month. The labor force, the number of employed persons, and the number of unemployed persons all decreased.
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 been showing movements of 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.
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, 16.3% expected a rise of less than 2% (16.6% in the previous month), 37.5% expected a rise of 2 to 5% (36.1% in the previous month), and 37.7% expected a rise of 5% or more (38.4% in the previous month) in February.
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 39,000-yen level to the 40,100-yen level, the Nikkei Stock Average declined to the 38,600-yen level, and thereafter rose to the 40,000-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of appreciation from the 150-yen level to the 146-yen level, moved in the direction of depreciation to the 149-yen level.