Monthly Economic ReportExecutive Summary( may 2025 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is recovering at a moderate pace, while the uncertainty arising from the U.S. trade policies and so on exists.
- Private consumption shows movements of picking up with the movement of improvement in the employment and income situation continuing, although consumer sentiment is in a weak tone.
- Business investment shows movements of picking up.
- Exports have been showing movements of picking up recently.
- Industrial production is flat.
- Corporate profits are improving.
Firms' judgments on current business conditions have been almost flat recently. - 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 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, further attention should be given to the effects of fluctuations in the financial and capital markets.
(Policy stance)
The Government will 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. To ensure the overcoming deflation, the Government will make effort to implement a “Growth-Oriented Economy Driven by Wage Increases and Investments”, standing on the principle of “Economy is the foundation of public finance”.
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, and will compile the "Basic Policies on Economic and Fiscal Management and Reform 2025 (provisional)" and other documents.
The Government and the Bank will continue to work closely together to conduct flexible policy management in response to economic and price developments.
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.
Detailed explanations
1. Demand trends such as consumption and investment
Real GDP (gross domestic product) in the January-March quarter of 2025 decreased by 0.2% on a quarterly basis (at an annual rate of 0.7%), posting negative growth for the first time in four quarters. Nominal GDP increased by 0.8% on a quarterly basis, posting positive growth for the sixth consecutive quarter.
Private consumption shows movements of picking up with the movement of improvement in the employment and income situation continuing, although consumer sentiment is in a weak tone.
According to Quarterly Estimates of GDP for January-March 2025 (First Preliminary Estimates), the real term of private consumption increased by 0.0% 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 March.
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) decreased by 0.8% from the previous month in March. Looking at Current Survey of Commerce, which comprises supply-side statistics, the retail sales value decreased by 1.2% from the previous month in March.
Looking at the background of consumption trends, real wage income of employees is picking up moderately. Consumer sentiment has been in a weak tone recently.
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 consumer sentiment is in a weak tone.
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 (October-December survey, including software investment) show that business investment increased in the October-December quarter of 2024 by 0.6% from the previous quarter. By industry, business investment increased for manufacturers by 0.7% from the previous quarter and increased for non-manufacturers by 0.5%.
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) (March survey), planned business investment for all industries in fiscal year 2024 is expected to increase. Planned business investment in fiscal year 2025 is expected to increase. According to the BOJ Tankan (March survey), DI for firms' judgment on production capacity was +1 for manufacturers, showing that the sense of excessive capacity decreased by 1 point from the December 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 December survey (-1). The figures for Orders Received for Machinery, a leading indicator, show movements of picking up. The planned amount of construction has been in a weak tone recently.
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 in March increased 34.1% from the previous month to 1.08 million dwelling units (annualized) partly due to 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 has been flat recently. Construction of 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. However, attention should be given to the effects of the reaction to the last-minute demand.
Public investment holds firm.
Public investment holds firm. The amount of public construction completed in March increased by 4.8% from the previous month, the amount of contracted public works in April increased by 7.4% from the previous month, and the amount of public works orders received in March increased by 3.5% 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 have been showing movements of picking up recently. Imports have been showing movements of picking up recently. The balance of goods and services is in deficit.
Exports have been showing movements of picking up recently. By region, exports to Asia have been showing movements of picking up recently. Exports to the U.S., especially those of transport equipment, have been showing movements of picking up recently. Exports to 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 have been showing movements of picking up recently. By region, imports from Asia have been showing movements of picking up recently. 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 balance of trade in March turned to deficit, 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 is flat.
Industrial production is flat. The Indices of Industrial Production increased by 0.2% from the previous month in March. The Indices of Industrial Inventories increased by 1.2% from the previous month in March. The Survey of Production Forecast in Manufacturing expects an increase of 1.3% in April and an increase of 3.9% in May.
By industry, transport equipment shows movements of picking up at the moment. Production machinery is flat. Electronic parts and devices have been flat 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. Firms’ judgments on current business conditions have been almost flat recently. The number of corporate bankruptcies is almost flat.
Corporate profits are improving. During the January-March quarter of 2025, the current profits of the listed companies decreased from the previous year for manufacturers and increased for non-manufacturers. According to the BOJ Tankan (March survey), in fiscal year 2025, sales are expected to increase by 0.9% in the first half of the year and are expected to increase by 0.8% in the second half from the previous year. Current profits are expected to decrease by 2.9% in the first half and increase by 0.2% in the second half from the previous year.
Firms' judgments on current business conditions have been almost flat recently. The BOJ Tankan (March survey) revealed that DI for firms' judgment on current business conditions remained unchanged for all enterprises in all industries. By industry, the DI decreased for all enterprises in the manufacturing industry by 1 point and increased for all enterprises in the non-manufacturing industry by 1 point from the previous quarter. 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 (April survey), current and prospective business conditions both fell.
The number of corporate bankruptcies is almost flat. The number of corporate bankruptcies was 853 in March and 828 in April. Total liabilities were 98.5 billion yen in March and 102.8 billion yen in April.
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 March, an increase of 0.1 percentage points from the previous month. The labor force and the number of employed persons decreased. The number of unemployed persons increased. 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, there is a slight upward trend for regular employment, while it is on a moderate 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 decreased.
According to the BOJ Tankan (March survey), DI for firms' judgment on current employment conditions, which shows firms' sense of a labor shortage, was -37 for all industries in March, showing that the sense of a labor shortage increased by 1 point from the December survey (-36). The DI was -23 for manufacturers, showing that the sense of a labor shortage was at the same level as the December survey (-23), and the DI was -46 for non-manufacturers, showing that the sense of a labor shortage was at the same level as the December 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 moderately. Consumer prices have been rising.
Producer prices have been rising moderately.
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, 6.3% expected a rise of less than 2% (7.4% in the previous month), 26.9% expected a rise of 2 to 5% (31.2% in the previous month), 31.1% expected a rise of 5 to 10% (31.7% in the previous month), and 28.9% expected a rise of 10% or more (23.6% in the previous month) in April.
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, the Nikkei Stock Average rose from the 34,200-yen level to the 37,500-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 141-yen level to the 147-yen level, moved in the direction of appreciation to the 145-yen level.