Economic Monthly [Japan]

Transcription

1 Economic Monthly [Japan] The current economic expansion appears to be the second longest in the post-war period TOORU KANAHORI KEI SHIMOZATO ECONOMIC RESEARCH OFFICE NOVEMBER (ORIGINAL JAPANESE VERSION RELEASED ON OCTOBER ) The Bank of Tokyo-Mitsubishi UFJ, Ltd. A member of MUFG, a global financial group. The Real Economy In September s Monthly Economic Report published by the Cabinet Office, the overall assessment that the Japanese economy is on a moderate recovery remained unchanged. While it has not yet been officially confirmed, the growth of the economy which started in December has continued to September; the current period of economic expansion has reached 58 months, becoming the second longest in the post-war period and surpassing the Izanagi Boom, a previous period of high growth (57 months). The pace of growth in the current period of economic expansion is gradual, even compared with the Izanami Boom (7 months), which was the longest post-war economic expansion and is referred to as the unfelt economic recovery (Chart ). Contributing factors for this were the consumption tax rate hike in April and the slowdown of overseas economies from 5 to the start of 6, which temporarily put downward pressure on the economy. However, the fundamental issues are there is a need to sweep away the prolonged deflationary mindset and a virtuous cycle which improves income, such as corporate earnings, leading to a significant increase in spending is still not fully established. This can be seen in the fact that the propensity to invest and consume is still not rising. As a result of this situation, there are numerous indications that the current phase of economic expansion is also intangible. That being said, while the pace of the economic expansion is moderate, on the flip side, it can be said that the negative impacts caused by an overheated economy will be small. On th October, the Nikkei Stock Average exceeded JPY, on an end-of-day basis for the first time in years; however, the price-earnings ratio was 9. on the same day, lower than in December (.8), which marked the start of the economic expansion. This shows that stock prices are not heating up. Furthermore, looking at the inventory situation, the inventories index for industrial production rose to. in March 6, but as a result of subsequent progress in inventory adjustments, it was 7. in August this year, returning to a level even lower than before the start of the economic expansionary period (.8 in November ). Looking at business and household sentiment, it has been recovering since mid-6 (Chart ), and there does not seem to be any decline in the positive view towards the future of the economy. Therefore, it appears that the economy will maintain a trend of gradual expansion in Economic Monthly [Japan] November

2 the future and will possibly exceed the Izanami Boom, becoming the longest post-war period of expansion. Chart : Periods of Economic Expansion in the 96s and in the 98s and Onwards (Real GDP at the each start of economic expansion=) Q Izanagi Boom Izanami Boom Mar 9 - Apr Jan - Oct 8 Jan Nov Oct 99 - May 997 Nov Feb 99 Feb 98 - Jun 985 Oct Jul 97 (right axis) Q 9 (Our Forecast) Current expansion (Dec -) Source: Cabinet Office, BTMU Economic Research Office (Quarters) Chart : Business Conditions DI and Economic Conditions DI (% points) - Business sentiment (business conditions -5 DI, all enterprise sizes and industries) -6 Household sentiment (economic -7 conditions DI) (Year) Note. "Business conditions DI" is the proportion of respondents who answered business conditions were "favourable" over the next months less those who answered "unfavourable".. "Economic conditions DI" is calculated as the proportion of respondents who answered that economic conditions "will improve" one year from now less those who said it would worsen Source: Bank of Japan, BTMU Economic Research Office. Financial Markets () Monetary Policy The Bank of Japan (BoJ) will announce the Forecast of the Majority of the Policy Board Members for the real GDP growth rate and the core CPI growth rate at the opening of its Monetary Policy Meeting on th st October. In July s Outlook for Economic Activity and Prices, the median forecast for core CPI growth in FY was.% YoY, but it is expected to be lowered as attaining this level of growth would mean an increase of.5% YoY from September until the end of the fiscal year. Meanwhile, the timing of the Price Stability Target reaching % was deferred in July from around fiscal 8 to around fiscal 9, but has not been changed this time. To answer the question of what kind of assumptions the BoJ has made in order to reach their Price Stability Target of % in around fiscal 9, the output gap predicted by the BoJ can be calculated and applied to the historical relationship of the inflation rate and the output gap. First, assuming that the future potential growth rate will not change from the BoJ s estimate of.8% for the first half of FY, if the real GDP growth rate forecast by Policy Board Members is realised, then the output gap will increase up to around.5% in FY9 (Chart ). At that time, it can be surmised that the BoJ believes that in order to attain inflation of % it will be necessary for the relationship between the output gap and the core CPI growth rate to shift upwards from the Bubble Economy period, or that a non-linear movement is required (Chart ). Therefore, in order to bring about the BoJ s expectation above, it is likely that a rise in wages owing to the labour shortage is needed. Nevertheless, the current tightness in the labour market is increasing to historically high levels, but there has not been a significant rise in wages. Under the tight supply and demand of labour, wages are forecast to continue to rise gradually. However, for wages to rise in line with a % rise in inflation over the next two years is thought to be a difficult hurdle to overcome. Economic Monthly [Japan] November

3 () Long-Term Yields and Exchange Rate The Nikkei Stock Average rose just above JPY, for the first time in years. The -year Japanese Government Bond yield increased to.7% and the USD depreciated to JPY, owing to a decline in a risk-adverse stance by investors. Looking forwards, provided there is no surprise outcome in the general election for the House of Representatives which will take place on nd October, it appears that external factors such as geopolitical risks and changes in US monetary policy will continue to shape future trends Chart : Core CPI Growth Rate and Output Gap (%) Assumptions in calculating output gap Potential growth rate: no change Real GDP growth rate: BoJ forecast -6 Output gap (left axis) - Core CPI growth rate (right axis) (Year) Note: "Core CPI growth rate" excludes the direct impact from the rise in the consumption tax rate. Source: Bank of Japan, Ministry of Internal Affairs and Communications, BTMU Economic Research Office (%) BoJ Forecast - Core CPI growth rate (%) Chart : Output Gap and Core CPI Growth Rate Price Stability Target: % C Q Q - A:985 Q ~ Q B:985 Q ~ 995 Q C:996 Q ~ Q Output gap (shifted forwards by two quarters, %) Note:. "Output gap"= (real GDP - potential real GDP)/potential real GDP. "Core CPI growth rate" excludes the direct effect from the rise in the consumption tax rate. Source: Cabinet Office, Ministry of Internal Affairs and Communications, BMTU Economic Research Office B A (Translated by Elizabeth Foster) Economic Monthly [Japan] November

4 MAIN ECONOMIC AND FINANCIAL INDICATORS (JAPAN).Main Economic Indicators Fiscal Fiscal 6 As of Oct., 5 6 Q Q Q MAY JUN JUL AUG SEP Real GDP Growth Rate <% changes from *** *** *** *** *** previous period at SA annual rate> (.7) (.5) (.) Index of All Industries Activity #N/A (.) (.8) (.5) (.) (.) (.) (.7) #N/A Industrial Production Index #N/A Production (.) (.8) (5.8) (6.5) (5.5) (.7) (5.) #N/A Shipments #N/A (.8) (.7) (5.) (5.) (5.) (.) (5.8) #N/A Inventory #N/A (-5.) (-.) (-.9) (-.) (-.9) (-.) (-.9) #N/A Inventory/Shipments Ratio #N/A (=) [.9] [6.8] [6.] [6.7] [5.] [6.] [.] [.5] Domestic Corporate Goods Price Index (-.) (.) (.) (.) (.) (.6) (.9) (.) Consumer Price Index(SA, total, excl.fresh foods) #N/A (-.) (.) (.) (.) (.) (.5) (.7) #N/A Index of Capacity Utilization #N/A (=) [97.9] [96.] [96.] [95.9] [96.6] [97.] [99.] [97.6] Machinery Orders(Private Demand, #N/A Excl.Electric Power and Ship building) (.6) (-.) (-.) (.6) (-5.) (-7.5) (.) #N/A Manufacturing #N/A (.5) (-6.8) (.5) (6.) (-.) (-.8) (.7) #N/A Non-manufacturing #N/A Excl.Electric Power & Ship building (.) (.) (-.5) (-.) (-6.9) (-.) (-.8) #N/A Shipments of Capital Goods #N/A (Excl.Transport Equipment) (.7) (.) (6.6) (9.5) (6.) (.5) (.) #N/A Construction Orders -.9. Private Public Public Works Contracts -.8. (5.) (.) (.7) (-.5) (.) (.9) (-.6) #N/A (6.7) (.8) (-7.) (-7.9) (-.) (8.) (-.) #N/A (-9.5) (-.8) (9.9) (9.) (6.) (.9) (-8.9) #N/A (-.5) (9.9) (.6) (8.5) (-.6) (-5.) (-7.9) (-.) Housing Starts #N/A, units at Annual Rate, SA (.6) (5.8) (7.9) (.5) (.) (-.) (.7) (-.) (-.) #N/A Total floor (.) (.) (5.) (.) (.) (-.6) (.5) (-.) (-.9) #N/A Sales at Retailers.8 -. (.8) (.) (.5) (.) (.) (.8) (.8) #N/A Real Consumption Expenditures #N/A of Households over persons (SA) (-.7) (-.) (.) (-.) (.) (-.) (.6) #N/A Propensity to Consume #N/A (SA,%) [7.] [7.6] [7.8] [7.7] [69.6] [7.] [7.7] [7.6] Overtime Hours Worked #N/A (All Industries, 5 employees or more) (-.) (.) (.9) (.6) (.7) (.6) (.6) #N/A Total Cash Earnings (Regular Employees.. Only; All Industries, 5 employees or more) (.) (.) (.5) (.6) (.) (-.6) (.7) #N/A Employment Index(Regular Employees Only;'All Industries, #N/A 5 employees or more)(change over the M/Q/Y) Ratio of Job Offers to Applicants #N/A (SA,Times) [.6] [.9] [.5] [.5] [.6] [.7] [.7] [.8] Unemployment Rate #N/A (SA,%) Economy Watcher Survey (Judgment of the present condition D.I,%) [7.7] [5.6] [.6] [.] [.] [5.] [5.6] [.8] Bankruptcies (Number of cases) 8,68 8,8,86,79, (-9.) (-.5) (-.) (-.) (.8) (9.5) (-7.5) (.) (-.) (.6) (Notes) Unless otherwise indicated, tabulated figures and those in parentheses show % changes from previous quarter/month as applicable. The figures in ( ) indicate % changes from previous year. [ ] show the comparable figure of the previous year. Economic Monthly [Japan] November

5 .Balance of Payments Fiscal Fiscal 6 As of Oct., 5 6 Q Q Q MAY JUN JUL AUG SEP Customs Clearance (Exports in Yen Terms) (-.9) (8.5) (.5) (.9) (9.7) (.) (8.) (.) Value (-6.) (.) (5.) (6.9) (5.5) (.5) (7.) (8.9) Volumes -.7. (.7) (5.) (5.) (7.5) (.) (.6) (.) (.8) Imports (In Yen terms) (-9.) (8.6) (6.) (7.9) (5.5) (6.) (5.) (.) Value (-.7) (6.) (.8) (.8) (.8) (.6) (.6) (.) Volumes (.6) (.) (.9) (5.) (.) (.) (.) (-.) Current Account ( mil. yen) 78,68,88,876 59,697 5,6 6,776 9,88,,8 #N/A Goods ( mil. yen),96 57,76 7,6,96 9,9 -,6 5,69 5,666,87 #N/A Services ( mil. yen) -,57 -,86-5,5 5 -, ,7 #N/A Financial Account ( mil. yen) 8,9 9,99,9 5,,7,97,9 8,5 9, #N/A Gold & Foreign Exchange Reserves ($mil.),6,99,,,6,9,,,9,87,5,868,9,87,6,,68,6,66, Exchange Rate (\/$) Financial Market Indicators Fiscal Fiscal Q Q Q MAY JUN JUL AUG SEP Uncollateralized Overnight Call Rates [.76] [.5] [-.5] [-.59] [-.55] [-.] [-.] -.5 Euro Yen TIBOR ( Months) [.69] [.] [.6] [.6] [.59] [.58] [.58] [.56] Newly Issued Japanese Government Bonds Yields ( Years) [.7] [-.5] [-.] [-.] [-.] [-.95] -.7 [-.85] Average Contracted Interest Rates.9.87 on Loans and Discounts(City Banks) #N/A (% changes from previous period) (-.) (-.6) (-.5) (-.) (-.7) (-.) (-.) #N/A The Nikkei Stock Average 6,759 8,99 9, 8,99, 9,65, 9,95 9,66,56 (TSE 5 Issues) [9,] [6,759] [5,576] [7,5] [5,576] [6,569] [6,887] [6,5] M(Average) (.5) (.6) (.7) (.) (.9) (.8) (.9) (.) (.) (.) Broadly-defined Liquidity(Average) (.7) (.8) (.6) (.) (.8) (.8) (.) (.5) (.7) (.8) Principal Figures of Financial Institutions Banks & Shinkin (.) (.) (.5) (.8) (.) (.) (.) (.) (.) (.) Loans and Banks (.5) (.) (.5) (.8) (.) (.) (.) (.) (.) (.) Discount City Banks etc. (.) (.) (.) (.) (.8) (.9) (.) (.) (.8) (.) (Average) Regional Banks (.7) (.5) (.6) (.6) (.7) (.7) (.7) (.7) (.8) (.7) Regional Banks Ⅱ (.) (.) (.) (.) (.) (.) (.) (.) (.) (.) Shinkin (.) (.) (.) (.5) (.8) (.9) (.8) (.7) (.7) (.8) Total( Business Condition) (.7) (.8) (.) (.5) (.5) (.5) (.7) (.5) (.) (.5) Deposits City Banks (.5) (5.5) (6.) (6.) (6.5) (6.) (6.7) (6.) (6.) (6.5) and CDs Regional Banks (.) (.) (.) (.7) (.6) (.6) (.7) (.7) (.6) (.5) (Average) Regional Banks Ⅱ (.5) (.) (.) (.) (.) (.5) (.) (.) (.) (.) (Notes) Newly Issued Japanese Government Bonds Yields and Interest rates are averages. The Nikkei Stock Average is as of month-end. Unless otherwise indicated, tabulated figures and those in parentheses show % changes from previous quarter/month as applicable. The figures in ( ) indicate % changes from previous year. [ ] show the comparable figure of the previous year. (Sources) Cabinet Office, National Accounts, Machinery Orders; METI, Indices of Tertiary Industry Activity, Industrial Production, Current Survey of Commerce; MOF, Trade Statistics, Balance of Payments; MPMHAPT, Consumer Price Index, Family Income and Expenditure Survey, Labour Force Survey; MHLW, Monthly Labour Survey; Ministry of Land, Infrastructure, and Transport, Economic Construction Statistics; BOJ, Corporate Price Index, Financial and Economic Statistics Monthly, etc. For further details, please contact the Economic Research Office, Bank of Tokyo-Mitsubishi UFJ Chief Manager, Yasuhiro Ishimaru Tel: +8-()-- Written by Tooru Kanahori <tooru_kanahori@mufg.jp> Kei Shimozato < kei_shimozato@mufg.jp > This report is intended for information purposes only and shall not be construed as solicitation to take any action such as purchasing/selling/investing financial market products. In taking any action, each reader is requested to act on the basis of his or her own judgment. This report is based on information believed to be reliable, but we do not guarantee its accuracy. The contents of the report may be revised without advance notice. Also, this report is a literary work protected by the copyright act. No part of this report may be reproduced in any form without express statement of its source. This report is also available for viewing online. 5 Japan Economic Monthly November