Monthly Economic ReportExecutive Summary( jul 2025 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is recovering at a moderate pace, while the effects caused from the U.S. trade policies and so on are seen in some areas.
- Private consumption shows movements of picking up with the movement of improvement in the employment and income situation continuing, although the improvement in consumer sentiment is slow.
- Business investment shows movements of picking up.
- Exports are almost flat.
- Industrial production is flat.
- Corporate profits are improving, although attention should be given to the effects of trade issues.
Firms' judgments on current business conditions have been almost flat. - The employment situation shows movements of improvement.
- Consumer prices have been rising.
Concerning short-term prospects, the improvement in the employment and income situation and the effects of the policies are expected to support a moderate recovery, while attention should be given to downturn risks of the Japanese economy due to the impact of the U.S. trade policies are increasing. In addition, the effects of continued price increases on private consumption through a downturn in consumer sentiment are also downside risks to the Japanese economy. Also, continued attention should be given to the effects of fluctuations in the financial and capital markets.
(Policy stance)
In light of the recent deal between Japan and the United States, the Government will continue to take all possible measures to response U.S. tariff measures, and will continue to ensure the provision of all essential support for economic and fiscal management. Based on the "Basic Policy on Economic and Fiscal Management and Reform 2025: Toward a Society in which People can Feel “Tomorrow will be Better than Today”, the Government will make effort to implement a “Growth-Oriented Economy Driven by Wage Increases and Investments”
To this end, the Government will promptly implement the “Comprehensive Economic Measures to Foster the Safety and Security of Citizens and Sustained Growth－Increasing Current and Future Wages and Incomes for All Generations－”, the FY2024 supplementary budget, and the FY2025 budget. Moreover, the Government will implement the "Emergency Response Package to U.S. Tariff Measures", which was decided on April 25th.
The Government and the Bank of Japan will continue to work closely together to conduct flexible policy management in response to economic and price developments.
The Government expects the Bank 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.
Detailed explanations
1. Demand trends such as consumption and investment
Private consumption shows movements of picking up with the movement of improvement in the employment and income situation continuing, although the improvement in consumer sentiment is slow.
According to Quarterly Estimates of GDP for January-March 2025 (Second Preliminary Estimates), the real term of private consumption increased by 0.1% from the previous quarter. According to Consumption Trend Index (CTI), the real term of Total Consumption Trend Index (CTI macro) increased by 0.1% from the previous month in May.
As for each index, looking at the Consumption Trend Index (CTI), which comprises demand-side statistics, the real value of the Household Consumption Trend Index (CTI micro, total households) increased by 1.8% from the previous month in May. Looking at Current Survey of Commerce, which comprises supply-side statistics, the retail sales value decreased by 0.6% from the previous month in May.
Looking at the background of consumption trends, real wage income of employees is picking up moderately. Consumer confidence has bottomed out.
Moreover, based on the interview results, new automobile sales are picking up. Home appliance sales are picking up. Travel is almost flat. Eating-out is increasing moderately.
Based on these results, private consumption shows movements of picking up with the movement of improvement in the employment and income situation continuing, although the improvement in consumer sentiment is slow.
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 sentiment.
Business investment shows movements of picking up.
Business investment shows movements of 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 2025 by 1.6% from the previous quarter. By industry, business investment increased for manufacturers by 0.1% from the previous quarter and increased for non-manufacturers by 2.4%.
Capital Goods Shipments and Imports (excluding transport equipment), which comprise supply-side statistics on investment in machinery and equipment, are almost flat. 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 2025 is expected to increase. According to the BOJ Tankan (June survey), DI for firms' judgment on production capacity was +1 for manufacturers, showing that the sense of excessive capacity was at the same level as the March survey (+1), while the DI was -2 for all industries, including non-manufacturers, showing that the sense of insufficient capacity was at the same level as the March survey (-2). The figures for Orders Received for Machinery, a leading indicator, show movements of picking up. The planned amount of construction shows movements of picking up.
As for short-term prospects, business investment is expected to continue to be on a pickup trend, mainly reflecting corporate profits, which have been steady so far, and actions for labor-saving investment.
Housing construction is almost flat.
Housing construction is almost flat. However, new construction starts of dwellings decreased 42.2% from the previous month in April, and decreased 15.6% from the previous month to 529,000 dwelling units (annualized) in May, partly due to a reactionary decline following the last-minute demand ahead of the amendment of the Act on the Improvement of Energy Consumption Performance of Buildings and the Building Standards Act. Construction of owned houses and houses for rent is flat. 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 holds firm.
Public investment holds firm. The amount of public construction completed in May decreased by 0.1% from the previous month, the amount of contracted public works in June decreased by 4.0% from the previous month, and the amount of public works orders received in May decreased by 13.0% from the previous month.
As for short-term prospects, public investment is expected to show steady movement due to the execution of related budgets.
Exports are almost flat. Imports show movements of picking up. The balance of goods and services is in deficit.
Exports are almost flat. By region, exports to Asia, the U.S., the EU and other regions are almost flat. As for short-term prospects of exports, attention should be given to such factors as the direct impact of the tariff increase by the U.S., and the indirect impact of trade issues through the world economy.
Imports show movements of picking up. By region, imports from Asia show movements of picking up. Imports from the U.S. and the EU are almost flat. 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 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 is flat.
Industrial production is flat. The Indices of Industrial Production decreased by 0.1% from the previous month in May. The Indices of Industrial Inventories decreased by 1.8% from the previous month in May. The Survey of Production Forecast in Manufacturing expects an increase of 0.3% in June and a decrease of 0.7% in July.
By industry, transport equipment has been flat recently. Production machinery is flat. Electronic parts and devices have been showing movements of picking up recently.
As for short-term prospects of production, attention should be given to such factors as the impact of trade issues.
Tertiary industry activity is picking up.
Corporate profits are improving, although attention should be given to the effects of trade issues. Firms’ judgments on current business conditions have been almost flat. The number of corporate bankruptcies is almost flat.
Corporate profits are improving, although attention should be given to the effects of trade issues. According to the Quarterly Financial Statements Statistics of Corporations by Industry (January-March survey), corporate profits during the January-March quarter of 2025 increased by 3.8% from the previous year and decreased by 2.6% from the previous quarter. By industry, manufacturers saw a decrease in corporate profits of 2.4% from the previous year, and non-manufacturers saw an increase of 7.0%. By size of company, large and medium-sized companies saw an increase of 3.4% from the previous year, and small companies saw an increase of 4.6%. According to the BOJ Tankan (June survey), in fiscal year 2025, sales are expected to increase by 1.9% in the first half of the year and are expected to increase by 0.9% in the second half from the previous year. Current profits are expected to decrease by 4.5% in the first half and decrease by 6.9% in the second half from the previous year.
Firms' judgments on current business conditions have been almost flat. The BOJ Tankan (June survey) revealed that DI for firms' judgment on current business conditions remained unchanged for all enterprises in all industries. By industry, the DI remained unchanged for all enterprises in the manufacturing industry and for all enterprises in the non-manufacturing industry. 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 rose, while prospective business conditions fell.
The number of corporate bankruptcies is almost flat. The number of corporate bankruptcies was 857 in May and 848 in June. Total liabilities were 90.3 billion yen in May and 105.7 billion yen in June.
The employment situation shows movements of improvement.
The employment situation shows movements of improvement. The sense of a labor shortage is at a high level.
The total unemployment rate was 2.5% 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 is increasing moderately.
Looking at Employment Referrals for General Workers, the number of new job offers at Public Employment Security Offices and the active job openings to applicants ratio are almost flat.
Looking at the year-on-year number of job offers at private employment agencies, it is almost flat for regular employment, while it is on a slight downward trend for part-time employment (excluding “casual work”).
As for the movement of wages, contractual cash earnings and the total cash earnings are increasing. Real wage income of employees is picking up moderately. Overtime hours worked in the manufacturing industry increased.
According to the BOJ Tankan (June survey), DI for firms' judgment on current employment conditions, which shows firms' sense of a labor shortage, was -35 for all industries in June, showing that the sense of a labor shortage decreased by 2 points from the March survey (-37). The DI was -22 for manufacturers, showing that the sense of a labor shortage decreased by 1 point from the March survey (-23), and the DI was -44 for non-manufacturers, showing that the sense of a labor shortage decreased by 2 points from the March survey (-46).
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 at a slower tempo recently. Consumer prices have been rising.
Producer prices have been rising at a slower tempo recently.
Consumer prices, in terms of general, excluding fresh food and energy, have been rising.
Consumer prices, in terms of general, excluding fresh food (referred to as “core”) have been rising.
According to the Monthly Consumer Confidence Survey (multi-person households), as for the ratio of households expecting prices to rise a year ahead, 10.4% expected a rise of less than 2% (8.2% in the previous month), 32.9% expected a rise of 2 to 5% (29.9% in the previous month), 27.9% expected a rise of 5 to 10% (31.0% in the previous month), and 20.9% expected a rise of 10% or more (24.5% in the previous month) in June.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to rise for the time being.
As for stock prices, after rising from the 38,100-yen level to the 40,400-yen level, the Nikkei Stock Average declined to the 39,400-yen level, and thereafter rose to the 41,400 yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 144-yen level to the 146-yen level, moved in the direction of appreciation to the 143-yen level, and thereafter moved in the direction of depreciation to the 147-yen level.