Japan Economic Monthly

Transcription

1 June 24, 21 (Original Japanese version was released June 18, 21) Japan Economic Monthly ~Quick Recovery Driven by Reaction to 28 Drops and Policy Impacts Winding Down~ Economic Research Office The Bank of Tokyo-Mitsubishi UFJ, Ltd. 1 The Real Economy 1 Overview of the Economy Economic recovery Japan s economy continues to recover due to increased exports and the continues effects of economic policy measures. The Indexes of Business Conditions Coincident Index improved to 11.6 in April, the highest level since July 28 (Figure 1). The index has been rising since bottoming in March 29, and the Cabinet Office tentatively declared at the Indexes of Business Conditions Study Committee meeting on June 7 that March 29 was the trough of the current economic downturn (November 27~). However, with a sizable deflationary gap and high unemployment rate, it will likely be some time before the economic recovery is actually felt. (25 = 1) Figure 1 Coincident CI of Business Conditions and Economy Watchers Survey (CI for Current Conditions) Economic Recession Temporary lull Coincident (CI) Economic Recession Economy Watchers Index right-scale (year) Source: Compiled by BTMU Economic Research Office based on the Cabinet Office "Indexes of Business Conditions" and "Economy Watchers Survey" (%)

2 Growing uncertainty about the future due to European sovereign debt problems DPJ, LDP Upper House election platforms focus on restoring fiscal soundness Growing uncertainty about the future due to the sovereign debt problems in Europe bears close watching. Though the current economic conditions DI in the March Economy Watchers Survey an indicator of respondents feelings about the direction of the economy remains high, it dropped for the first time in six months (Figure 1). Respondents noted not only one-off factors like inclement weather, but also that the strong yen and weak share prices were depressing corporate and household sentiment. The pace of the economic recovery is starting to show signs of slowing as the impacts of the policy stimulus measures wear off, and downside risk from international financial and capital market volatility bears watching. Political parties are drawing up their campaign promises ahead of the July Upper House elections, and the post-election direction of the economy is coming into view. The Democratic Party of Japan and Liberal Democratic Party platforms differ in regard to growth strategy and targets as well as childcare allowances. On the other hand, the two parties largely concur on fiscal policy; both support achieving fiscal primary balance surpluses within the next 1 years (Table 1). Both parties also propose raising the consumption tax; this is an about-face from former Prime Minister Yukio Hatoyama s pronouncement that the consumption tax would not change. Furthermore, the LDP is now proposing a definite target of 1%. That both the ruling and opposition parties are learning from the events in Greece and emphasizing fiscal stability more is clearly a welcome change. Table 1: DPJ, LDP Upper House Election Platforms DPJ LDP Establish fiscal restructuring goal of bringing Reduce primary balance deficit to half of FY1 level primary balance deficit to below half of FY1 level by FY15, achieve surplus by FY2 (Note 1) by FY15, and achieving surplus by FY2 Fiscal rehabilitation Hold new JGB issuances to below FY1 level of JPY44.3 trn Introduce Pay-as-You-Go system (Note 1) Set up bipartisan consultative organ for fiscal restructuring Include balanced budget amendment in Constitution Consumption tax Drastic reform of tax structure, incl consumption tax For the time being 1% Growth targets Nominal 3%, Real 2% Nominal 4% Growth strategy Next-generation automobiles ratio 5% Encourage acceptance of foreign patients Increase production of Japan-made content Promote Japanese involvement in overseas infrastructure building Create special tourism zones, etc. (Note 2) Corporate tax Reduction Reduce to 2% level Childcare allowance Limiting cash payment to JPY13, Comprehensive review Ease next-generation social system, health/medical, agricultural/forestry/fishery regulations and unify with international standards and concentrate investment Speed up overseas promotion of lifeline systems Work toward FTAs, EPAs Promote Japanese version FDA framework Note 1: From Fiscal Responsibility Act submitted to Diet in March. Note 2: From New Growth Strategy Source: Compiled by BTMU Economic Research Office from both parties' websites, various media sources. 2

3 2 Corporate Sector Exports Despite continued Exports remain solid, rising for the 14 th straight month in April, by +5.2% firmness, MoM, according to the Cabinet Office s Export Volume Index (Figure 2). By slowdown looms destination, shipments to the EU surged +8.3% MoM and supported exports overall, while shipments to Asia which had been driving exports rose only +.3% MoM. We project that the pace of export growth will slow because overseas leading economic indicators have started to fall (Figure 3). Shipments to Asia, which had been driving the recovery in Japanese exports, have returned to their pre-financial crisis peak, and the recent high rates of growth because of the rebound effect are likely to end. Though the Asian economies, especially China, are expected to remain firm, Japanese export growth will likely decelerate to the pace of Asian growth, and export growth overall will probably slow down Figure 2: Export Volume by Destination Region (Base year 25 = 1) Total US EU Asia (Year) Source: Compiled by BTMU Economic Research Office from Cabinet Office Export Volume Index. Figure 3: Exports and Overseas Economic Leading Indicators (vs 6 mos before, %) (vs 6 mos before, %) Export volume index Overseas economic leading indicators (right axis) (Year) Note:Oveseas economic leading indicators for OECD countries and six major non-member countries (China, India, Brazil, Russia, Indonesia, South Africa) Source: Compiled by BTMU Economic Research Office from Cabinet Office Export Volume Index and Bloomberg data Production Production recovery continues, but pace slowing Production continues on its recovery trajectory supported by firm external demand; the Survey of Production Forecasts indicates that production will continue to rise for the foreseeable future. However, even if the forecast is realized, production in Apr-Jun will rise only +2.2% QoQ, clearly slower than the 5%-plus QoQ pace of Jan-Mar. This likely indicates that the quick recovery in reaction to last year s sudden plunge is ending (Figure 4). We project that exports will continue to rise even as the pace slows, and that the recovery trend will persist. However, the speed of recovery will likely be gradual. 3

4 (MoM, % change) 6 Figure 4: Industrial Production MoM Same, 3-month moving -1 8/1 8/4 8/7 8/1 9/1 9/4 9/7 9/1 1/1 1/4 (Year/Month) Note: May, June figures extrapolated from April Production Forecast Index results. Source: Compiled by BTMU Economic Research Office from METI Industrial Production Indexes and BoJ Real Exports. Capital expenditures Capital Expenditure recovery spreading to non-manufacturing sector Corporate profits continue to improve Capital expenditures have begun to rise as exports and production increase. April machinery orders (private sector demand, excluding electric power and shipbuilding industries) increased +4.% MoM, the second straight month of increase. Broken down, though manufacturers orders fell -5.5% MoM for the first decline in five months, an improvement is underway. On the other hand, orders from non-manufacturers (excluding shipbuilding and power generation industries) rose for the second straight month, by +5.3% MoM, indicating a bottom has been reached (Figure 5). Exports and durable goods consumption supported by the economic stimulus measures has proven to drive the economic recovery, but the recovery in capital expenditures is widening as those effects spread from manufacturers to non-manufacturers. Corporate profits are also improving. According to the MoF s Quarterly Report on Financial Statements Statistics of Corporations by Industry (for all industries except finance and all enterprise sizes) in Jan-Mar, sales increased +3.7% QoQ, while recurring profits rose +1.9% QoQ. Both rose for the fourth straight quarter (Figure 6). In addition to the effects of cost reductions in response to plunging revenue, sales are currently improving and recurring profits have recovered to 74% of their recent peak. Corporate investment conditions are gradually improving, and we anticipate that capital expenditures will continue to recover, though gradually. 4

5 (Seasonally adjusted, JPY bn) 7 Figure 5: Machinery Orders (Trn yen) 4 Figure 6: Sales, Recurring Profits (Trn yen) Manufacturers 2 Same, 3-month moving avg 1 Non-manufacturers (excl shipbuilding, electricity generation) Same, 3-month moving avg (Year) Source: Compiled by BTMU Economic Research Office from Cabinet Office Machinery Orders Sales Recurring profits (right axis) Note: Industries of all sizes and sectors, excluding financial and insurance. (Year) Figures adjusted for seasonality. Source: Compiled by BTMU Economic Research Office from MoF quarterly corporate data Household Sector Labor, Wages Only slow Though the new job offers ratio continued to recover in April, the improvement in unemployment rate rose for the second straight month as the improvement in labor environment labor conditions has been slow at best (Figure 7). Figure 7: Unemployment Rate and New Hires Ratios (Seasonally-adjusted figures, %) (Seasonally-adjusted figures, %) Unemployment rate New hires ratio (righ, inverse axis) (Year) 1.8 Source: Compiled by BTMU Economic Research Office from MIC Labor Force Survey and MHLW Survey on Employment Trends. A breakdown of worker numbers reveals that while the number of male workers has remained steady at a low level after plunging, the number of female workers is improving despite monthly fluctuations (Figure 8). The rise in the April unemployment rate was largely due to the decline in number of female workers, but the overall weak number of male workers has been keeping the unemployment level high. 5

6 Figure 8: Worker Numbers by Gender (Seasonally-adjusted figures, ', persons) (Seasonally-adjusted figures, ', persons) 3,85 2,7 3,8 3,75 2,65 3,7 3,65 Males Same, 3-month moving average Females (right axis) 2,6 3,6 2, (Year) Source: Compiled by BTMU Economic Research Office from MIC Labor Force Survey. Different ratios of male and female worker in different industries is largely responsible for the gap in male and female worker numbers. The proportion of female workers in manufacturing and construction industries, which cut a large number of workers in the recent downturn, is low, while females account for a larger proportion of the workforces in the medical and welfare sectors, which employ large numbers (Figure 9, 1). Thus, not only has the drop in female workers been less pronounced in the recent cycle, the recovery in worker numbers has also been clearer than among male workers Figure 9: Worker Numbers, by Industry Males Females 8 9 1(Year) Note: Apr-Jun 21 quarterly figure is from Apr figure. Source: Compiled by BTMU Economic Research Office from MIC Labor Force Survey. Other Public workers Services Composite services Medical, welfare Education, learning support Lifestyle-related services Hospitality, dining Specialty technology services Real Estate Financial, Insurance Wholesale, Retail Transport, Postal Information, Communications Manufacturing Construction (%) 1 Figure 1: Ratio of Female Workers by Industry Major employer Medical, Welfare Hospitality, dining Lifestyle-related services Education, learning support Financial, Insurance Whole sale, Retail Services Non-farm, forestry Composite services Real estate Bigger drops in employment Special technology services Others Manufacturing Information, Communication Public workers Transport, Postal Construction Source: Compiled by BTMU Economic Research Office from MIC Labor Force Employment continues to increase in the medical and welfare sectors, which are expected to have greater structural demand for labor in the future. With 1.5 million applications for employment adjustment subsidies (Figure 11), there is still a strong sense of surplus labor in the manufacturing sector, which cut a large number of workers. It appears that it will be some time before the labor 6

7 environment improves. Therefore, while the labor environment continues to improve primarily among women, the pace of improvement will likely be only gradual. Figure 11 : Claims Received for Employment Adjustment Subsidies (1, claims) (1, people) 9 3 Number of Business Establishments 8 Subject Persons <right scale> /1 9/4 9/7 9/1 1/1 1/4 Source: Compiled by BTMU Economic Research Office from MHLW "Claims Received (year / month) for Business Leave Plans Regarding Employment Adjustment Subsidies" Second straight month of year-on-year wage increases Wages (total cash wages) rose +1.5% YoY in April, the second straight month of year-on-year rise (Figure 12). While scheduled earnings (-.4% YoY) dropped once again, rising non-scheduled earnings (+11.3% YoY) and special earnings (+5.% YoY) supported the rise overall. Non-scheduled working hours are expected to continue to increase and corporate earnings to improve, and this is likely to continue to support rising wages, especially non-shecudled and special earnings. Figure12: Details of Total Cash Earnings (qoq contribution, %) Special earnings -4 Non-scheduled earnings -5 Scheduled earnings -6 Total cash earnings (year) Note: Establishment with 5 or more employees Source: Compiled by BTMU Economic Research Office based on the MHLW,"Monthly Labour Survey" 7

8 Private Consumption Reactionary drop Private consumption has maintained its upward momentum thanks to of thin-screen TVs government stimulus measures. The Cabinet Office s synthetic consumption pulled down April index dropped -.3% MoM in April (Figure 13), but this was primarily because private of retroaction from big demand for thin-screen TVs in March ahead of new consumption ecopoint system eligibility rules that began in April (Figure 14). (MoM, %) 3 Figure 13: Synthetic Consumption Index (1,units) 5 Figure 14 : Vehicle and TV Sales (1,units) Vehicles Television(right axis) /1 6/5 6/9 7/1 7/5 7/9 8/1 8/5 8/9 9/1 9/5 9/9 1/1 (Year/Month) Source: Compiled by BTMU Economic Research Office based on Cabinet Office, "Private Consumtion Integrated Estimates" Notes: Seasonally adjusted by BTMU Economic Research Office Vehicles include mini-vehicles. Sources: Compiled by BTMU Economic Research Office based on Japan Automobile Manufacturers Association "New Registrations, Mini-Vehicles Sales" and Japan Electronics and Information Technology Industries Association "Domestic Shipments of Major Consumer Electronic Equipment" (Year) Vehicle sales have been peaking since the end of last year. The upward effects on consumption from the eco-car subsidies and the ecopoint system may be decreasing, although these measures will not end for some time. The eco-car subsidies will be over in September and the ecopoint system in December (Figure 14). Private consumption recovery by seniors Durable goods consumption has been led by seniors, those aged 6 or over, while other age groups have not contributed significantly to the big increase in private consumption so far (Figure 15). Seniors, whose economic conditions are relatively stable, appear to have taken advantage of stimulus measures; meanwhile, other age groups, whose buying patterns are more sensitive to employment and wage conditions, have not contributed as much as seniors. Private consumption is expected to slow once the stimulus effects runs their course primarily because seniors are unlikely to have income sources other than pensions. 8

9 (YoY contribution, %pt) 3 Figure 15:Durable Goods Consumption by Age Group (pt) Under Over 7 Durable goods consumption 29/4: Eco-car tax cuts 29/5: Eco-car subsidies 29/5: Ecopoint system 26/ / / / /1-3 Source: Compiled by BTMU Economic Research Office based on MIAC, "Survery of Household Economy" Over the long term, employment and wage conditions are the key for a private consumption recovery. However, over the short term, child subsidy payments starting in June will be a somewhat positive factor in boosting consumption. Consumption will probably not strengthen for some time because of the slow recovery in employment and wage conditions. It is also possible that falling stock prices and a strong yen have a negative effect on consumer sentiment, and downside risk should be watched after the effects of stimulus measures fade away. Residential Investment Residential Residential investment has stalled. New housing starts have seesawed investment stalls, around an annualized rate of 8, units, dropping -7.2% MoM to 793, though units (seasonally adjusted) in April. By type of usage, rental, owner-occupied condominiums show and detached homes dropped for three consecutive months, pulling down all signs of recovery starts although condominiums showed signs of improvement (Figure 16). (Seasonally-adjusted annualized, '. units) Figure 16 : New Housing Starts by Owner-Occupant Relation (Seasonally-adjusted annualized, '. units) 8 All(left axis) Rent house(right axis) Owner-occupied + Detached homes right axis Condominiums right axis Note: Owned homes + Subdivided detached homes and Condominiums seasonally adjusted by BTMU Source: Compiled by BTMU Economic Research Office from MLIT Housing Starts (Year) 9

10 Rental homes have been decreasing because it takes some time to overcome a glut of supply, and also because home buyers tax cuts do not apply to these houses. Owner-occupied and detached homes have also been sluggish, though low interest rates and tax cuts have been supporting home purchases; as the rising unemployment rate in April shows, a slow recovery in employment and wage conditions has probably kept consumers from buying homes. Furthermore, increasing the amount of tax cuts from 29 may have less effect than before. On the other hand, condominium inventories, which had long been stagnant, continue to be reduced, with the average contract ratio improving. However, both sales prices and inventory rates are still high, so any improvement will be slow for a while. Housing starts remains at low levels even with support measures It is unlikely that housing starts will show a strong recovery even with various support measures. The home ecopoint system applies mainly to home renovations, and applications for new houses in April totaled 2,17 (4,641 in March), comparatively few vis-à-vis all housing starts in April (66,53 units, annualized). Any positive effect by the ecopoint system on increasing housing construction is limited. Furthermore, employment and wage conditions are expected to continue to recover slowly, and new housing starts will subsequently remain at low levels. Figure 17: Implementation of Housing Eco-System April 4 New houses 2,17 13% units (13%) March 5 New houses 4,641 21% units (21%) Renovated houses 14,286 87% units (87%) Renovated houses 17,47 79% units (79%) Source: Compiled by BTMU Economic Research Office based on Housing Eco-point Office, "The the Implementation of Housing Eco-Point System" 1

11 4 Prices Core CPI decline (excluding waiving of high school tuitions) easing due to rising crude oil prices Deflationary pressures to weaken due to rising resource prices and narrowing deflationary gap The Consumer Price Index (core CPI, excluding fresh foods) fell by -1.5% YoY in April, accelerating its March decline (-1.2% YoY) (Figure 18). However, discounting the negative contribution of -.54ppt from the high school tuition waiver, the drop in core CPI eased compared to the March level. Excluding high school tuitions, energy such as gasoline and heating oil prices as well as overseas package tour costs contributed to the core CPI s slower decline. Rising crude oil prices by April had a negative impact on consumer prices. Resource prices are expected to continue to rise due to recovering overseas economies, primarily in emerging nations. Meanwhile, prices are weakening lately because of the sovereign debt issue in Europe. Deflationary pressures on consumer prices will ease due to a narrowing deflationary gap, while inflationary pressure from commodity prices will rise (Figure 19). We project that the CPI will turn positive in the first half of FY11, as the deflationary gap will not completely clear up for some time. 3 Figure 18:Consumer Prices (yoy, %) 4 Figure 19: GDP Gap and Consumer Price High school tuition Energy Foods, excl fresh foods Other goods and services (excl high school tuition) Overall, excl fresh foods (year) Note: Energy includes electricity, city gas, propage gas, kerosene, and gasoline costs. Source: Compiled by BTMU Economic Research Office from Consumer Prices (year) Source: Compiled by BTMU Economic Research Office "National Accounting" 2 The Financial Markets 1 Monetary Policy BoJ introduces The BoJ is maintaining its policy to continue to contribute toward ending fund-supplying deflation as a central bank. At the June Monetary Policy Board meeting, measures to help the BoJ agreed to introduce fund-supplying measures to help strengthen the strengthen the foundations of economic growth. Through this measure, the BoJ will provide foundations for funds at low interest rates to private financial institutions that lend or invest in economic growth order to strengthen the foundations for growth of the Japanese economy (Table 2). 11

12 Table2 the Fund-Provisioning Measure to Support Strengthening the Foundations for Economi Outline Form of Loans Periods The same form as the Bank's Funds-Supplying Operations against Pooled Collateral New loans are scheduled to be disbursed quarterly. August, 21 to March,212 Eligible Sector (1) Research and development (1) Business serving the needs of senior citizens (2) Setting up a new business (11) Business in the content creation industry (3) Business reorganization (4) Investment and business deployment in Asian and other countries (12) Tourism business (13) Regional and urban revitalization business Duration of Loans Loan Rates One year in principle (14) Agriculture, forestry, and fisheries business; The loan can be rolled over up to three times (the (5) Science and technology research Business linking agriculture, commerce, maximum duration of the loan shall be four years). at universities and research institutions and industry The Boj's target for the uncollateralized overnight call rate (6) Development and upgrading of (15) Business which supports the creation of on the day of disbursement of the loan social infrastructure housing stock Total Amount of Loans 3 trillion yen (7) Environment and energy business (16) Disaster prevention business (8) Business for securing and developing (17) Employment support and human resources 15 billion yen Maximum Amount of natural resources development business (within the range of loans and investments for the eligible Loan to Each Counterparty (9) Medical, nursing care, and other sectors) (18) Childcare services business health-related business Source: Compiled by BTMU Economic Research Office based on the information from BOJ. Effectiveness of the measure unclear The BoJ calls this measure extraordinary work, so the measure is considered an ambitious trial. But it is unclear how effective the experiment will be. The measure s three trillion yen is small compared to the total 471 trillion yen in private financial institutions loan, stock and corporate bond holdings. The measure is thought to be intended to encourage corporate demand for funds. Recently, corporate capital expenditures have been limited to within cash flows, so whether the measure will encourage capital expenditures will be watched. Though this is a bold step for the BoJ, it is considered indirect support for the private sector, and we do not have high expectations. As the BoJ says, private economic agents primarily take the lead in economic growth (from the statement of the June Monetary Policy Board meeting). It needs innovation in the private sector and the implementation of growth strategies to overcome deflation. 2 Benchmark JGB Yield JGB benchmark The flight to quality touched off by the European sovereign debt problem has yield pressured pushed the JGB benchmark yield downward. The yield on newly-issued downward on flight 1-year JGBs now stands at approximately 1.2%, the lowest level since last to quality December (Figure 2). The yield s decline has been more pronounced in shorter term JGBs, and the yield on the 5-year JGB is now approximately.4%, the lowest level in seven years. There is now growing speculation that central banks in the advanced economies will delay their exit strategies because of the volatility in international financial and capital markets; this has put strong downward pressure on yields in the medium-term zone, which are more sensitive to monetary policy. 12

13 Figure2 Long-term Interest Rates 2.2 % year govenment bond yield 5-year govenment bond yield year Source: Compiled by BTMU Economic Research Office based on Bloomberg data. JGB benchmark yield likely to remain low 3 Exchange rates JPY/EUR highest level since 21 The European sovereign debt problem appears to be entering a lull, but events remain hard to predict. Further, domestically, funds are expected to flow into the JGB market in reflection of weak demand for funds in the private sector as capital expenditures recover only slowly. There is a good possibility that the JGB benchmark yield will remain at a low level for some time. An aversion to risk triggered by the European sovereign debt problem has put upward pressure on the JPY. The JPY has strengthened particularly against the EUR, and on June 7 the JPY hit JPY/EUR18.8, the highest level since November 21 (Figure 21). Against the USD, the JPY broke above the USD/JPY9 level at the end of May and has leveled off at approximately USD/JPY91since then. The JPY has strengthened overall against other currencies, and the yen hit its highest nominal effective rate since February 29 (Figure 22). 13

14 (JPY/USD) 14 Figure 21:Yen Exchange Rate (JPY/EUR) 18 (1999/1/4=1) 125 Figure 22: Nominal Effective Exchange Rate USD EUR(right axis) Source: Compiled by BTMU Economic Research Office based on Bloomberg data (year) /1 8/7 9/1 9/7 1/1 (Year/Month) Source: Compiled by BTMU Economic Research Office based on "Yen Index" by BOJ. Prime Minister Naoto Kan is viewed as a proponent of a weak yen due to comments regarding expectations of yen weakness made while he served as Finance Minister. He has refrained from commenting on recent exchange rate movements and is thus not expected to have significant impact on exchange rates (Table 3). Rather, watchers should be wary of the risk of further JPY strengthening as the European sovereign debt crisis smolders. Table 3: Minister Kan's Statements Regarding Exchange Rates I believe the yen should weaken a little more. Many in the business world feel that a rate of around the mid USD/JPY9's is optimal for trade. (Jan 17 press conference) (The foreign exchange markets) will determine that. (April 12 Speech at Foreign Correspondents Club of Japan) Too much (exchange rate) volatility is not desirable. (May 7 press conference) A too-strong yen is not desirable. (May 21 press conference) Source: Compiled by BTMU Economic Research Office from various media sources. For further details, please contact the Economic Research Office (Chief Manager Sakuma) Tel: Directed by Toshiki Iwaoka toshiki_iwaoka@mufg.jp Written by Shin Takayama (Public Sector and Financial Markets) shin_takayama@mufg.jp Shinji Ishimaru (Corporate Sector and Prices) shinji_ishimaru@mufg.jp Mikiko Nishimura (Private Consumption and Residential Investment) mikiko_nishimura@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 at 14

15 Main Economic Indicators MAIN ECONOMIC AND FINANCIAL INDICATORS (JAPAN) As of Jun 24, 21 Fiscal Fiscal Q 3Q 4Q 1Q JAN FEB MAR APR MAR Real GDP Growth Rate <% changes from previous period at SA annual rate> (-1.1) (4.6) *** *** *** *** *** Index of All Industries Activity -4.5 #N/A #N/A (-9.3) (-7.) (-3.7) (3.7) (1.9) (4.2) (4.9) (3.8) #N/A Industrial Production Index #N/A Production (-27.4) (-19.4) (-4.3) (27.5) (18.9) (31.3) (31.8) (25.9) #N/A Shipments #N/A (-27.3) (-18.8) (-3.3) (26.5) (2.1) (29.) (29.9) (27.1) #N/A Inventory #N/A (-1.3) (-12.1) (-14.6) (-6.) (-12.3) (-7.5) (-6.) (-3.4) #N/A Inventory/Shipments Ratio #N/A (25=1) [13.] [17.3] [123.4] [149.6] [148.9] [154.6] [145.2] [14.3] [14.3] Domestic Corporate Goods Price Index (-5.5) (-8.2) (-5.2) (-1.7) (-2.2) (-1.6) (-1.3) (-.1) (.4) Consumer Price Index(SA, total, excl.fresh foods) #N/A (-1.) (-2.3) (-1.8) (-1.2) (-1.3) (-1.2) (-1.2) (-1.5) #N/A Index of Capacity Utilization #N/A (25=1) [14.] [1.4] [87.1] [65.4] [7.5] [62.7] [63.1] [68.8] [72.8] Machinery Orders(Private Demand, #N/A Excl.Electric Power and Ship building) (-33.4) (-27.3) (-14.) (-1.8) (-1.1) (-7.1) (1.2) (9.4) #N/A Manufacturing #N/A #N/A (-47.) (-45.7) (-17.3) (29.) (34.3) (37.2) (21.5) #N/A #N/A Non-manufacturing #N/A #N/A Excl.Electric Power & Ship building (-23.7) (-12.) (-1.8) (-15.1) (-18.3) (-23.4) (-8.) #N/A #N/A Shipments of Capital Goods #N/A (Excl.Transport Equipment) (-41.4) (-34.4) (-21.4) (5.8) (-7.1) (11.3) (11.) (3.) #N/A Construction Orders (-31.4) (-25.4) (-18.4) (18.7) (15.7) (-2.3) (42.3) (-25.) #N/A Private (-36.) (-27.2) (-2.4) (29.9) (9.5) (-2.2) (75.3) (-31.3) #N/A Public (-14.5) (3.1) (-21.4) (-1.5) (13.7) (-12.8) (-14.3) (-18.9) #N/A Public Works Contracts (13.) (11.2) (6.3) (-11.8) (-3.8) (-8.8) (-16.) (-.1) (-5.9) Housing Starts #N/A 1, units at Annual Rate, SA (.3) (-25.4) (-31.9) (-35.8) (-2.9) (-6.6) (-8.1) (-9.3) (-2.4) (.6) #N/A Total floor (-2.3) (-21.5) (-29.3) (-31.7) (-15.1) (-3.4) (-3.4) (-8.) (1.) (5.7) #N/A Sales at Retailers (-2.8) (-1.9) (-.7) (3.8) (2.3) (4.2) (4.7) (4.9) #N/A Real Consumption Expenditures #N/A of Households over 2 persons (SA) (-2.3) (-2.3) (-3.2) (-3.2) (1.7) (-.5) (4.4) (-.7) #N/A Propensity to Consume #N/A (SA,%) [74.3] [73.8] [71.9] [74.] [72.8] [74.9] [75.] [74.9] [72.1] Overtime Hours Worked #N/A (All Industries, 5 employees or more) (-18.2) (-14.9) (-7.7) (1.) (4.4) (11.4) (14.5) (11.9) #N/A Total Cash Earnings (Regular Employees Only; All Industries, 5 employees or more) (-4.7) (-3.6) (-4.1) (.) (-.2) (-.7) (1.) (1.6) #N/A Employment Index(Regular Employees Only;'All Industries, #N/A 5 employees or more (Change over the M/Q/Y) [72,912.] [65,668.3] [49,422.3] [-71,698.8] [-62,174.6] [-73,535.8] [-79,386.1] [-82,89.6] [-14,334.8] Ratio of Job Offers to Applicants #N/A (SA,Times) [.94] [.86] [.74] [.59] [.65] [.58] [.53] [.48] [.46] Unemployment Rate #N/A (SA,%) [4.] [4.] [4.1] [4.5] [4.2] [4.4] [4.8] [5.] [5.1] Economy Watcher Survey (Judgment of the present condition D.I,%) [32.4] [28.5] [19.8] [21.6] [17.1] [19.4] [28.4] [34.2] [36.7] Bankruptcies (Number of cases) 16,146 14,732 3,954 3,782 3,529 3,467 1,63 1,9 1,314 1,154 1,21 (12.3) (-8.7) (3.2) (-6.2) (-13.2) (-17.7) (-21.8) (-17.2) (-14.5) (-13.1) (-15.1) (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. 15

16 Balance of Payments As of Jun 24, 21 Fiscal Fiscal Q 3Q 4Q 1Q JAN FEB MAR APR MAR Customs Clearance(Exports in Yen Terms) (-38.6) (-34.4) (-8.) (43.3) (4.9) (45.3) (43.5) (4.4) (32.2) Value (-8.) (-12.6) (-6.5) (-.3) (-.3) (-.4) (-.3) (.6) (.2) Volumes (-33.2) (-24.9) (-1.2) (43.8) (41.3) (45.9) (43.9) (39.5) (31.9) Imports(In Yen terms) (-39.9) (-39.5) (-2.9) (18.9) (8.9) (29.5) (2.6) (24.2) (33.4) Value (-24.2) (-3.8) (-16.4) (5.) (6.6) (5.4) (3.2) (5.6) (9.2) Volumes (-2.7) (-12.6) (-5.) (13.1) (2.2) (23.) (16.9) (17.6) (22.3) Current Balance(1 mil. yen) 123, ,547 32,514 4,888 34,99 49,46 8,998 14,76 25,342 12,421 #N/A Trade Balance(1 mil. yen) 11,589 66,85 11,678 13,431 2,477 2,499 1,972 7,78 1,747 8,591 #N/A Services(1 mil. yen) -2,469-18,33-6,926-4,278-4,797-2,32-1, ,255 #N/A Capital and Financial Accounts(1 mil. yen) -173,53-123,387-2,73-28,76-17,25-57,331-5,112-14,767-37, #N/A Gold & Foreign Exchange Reserves($1mil.) 1,18,549 1,42,715 1,19,175 1,52,598 1,49,397 1,42,715 1,53,7 1,51,79 1,42,715 1,46,873 1,41,318 Exchange Rate(\/$) Financial Market Indicators Fiscal Fiscal Q 3Q 4Q 1Q JAN FEB MAR APR MAR Uncollateralized Overnight Call Rates [.57] [.51] [.333] [.11] [.12] [.111] [.1] [.14] [.12] Euro Yen TIBOR (3 Months) [.844] [.854] [.831] [.693] [.722] [.77] [.649] [.62] [.572] Newly Issued Japanese Government Bonds Yields (1 Years) [1.642] [1.472] [1.347] [1.293] [1.27] [1.27] [1.34] [1.43] [1.48] Average Contracted Interest Rates on Loans and Discounts(City Banks) #N/A (% changes from previous period) (-.96) (-.13) (-.32) (-.29) (-.9) (-.8) (-.12) (-.7) #N/A The Nikkei Stock Average 8,11 11,9 9,958 1,133 1,546 11,9 1,198 1,126 11,9 11,57 9,769 (TSE 225 Issues) [13,481] [11,26] [8,86] [8,11] [7,994] [7,568] [8,11] [8,828] [9,523] M2(Average) (2.1) (2.9) (2.6) (2.8) (3.3) (2.8) (3.) (2.7) (2.7) (2.9) (3.1) Broadly-defined Liquidity(Average) (.1) (.8) (.) (.5) (1.4) (1.2) (1.3) (1.2) (1.) (1.6) (2.) Principal Figures of Financial Institutions Banks & Shinkin (2.4) (.8) (2.9) (1.8) (.2) (-1.6) (-1.5) (-1.5) (-1.9) (-1.8) (-2.) Loans and Banks (2.7) (.8) (3.1) (1.9) (.1) (-1.8) (-1.7) (-1.6) (-2.) (-1.9) (-2.1) Discount City Banks etc. (1.9) (-.4) (2.5) (.8) (-1.3) (-3.5) (-3.4) (-3.3) (-3.7) (-3.4) (-3.9) (Average) Regional Banks (3.9) (2.4) (4.4) (3.4) (1.8) (.1) (.2) (.1) (-.) (-.1) (.) Regional Banks (2.4) (1.3) (1.8) (1.7) (1.3) (.3) (.8) (.8) (-.6) (-.2) (-.5) Shinkin (.9) (.8) (1.9) (1.4) (.6) (-.7) (-.4) (-.7) (-1.) (-1.1) (-1.3) Total(3 Business Condition) (1.7) (2.9) (2.7) (3.2) (3.1) (2.7) (3.) (2.9) (2.4) (2.7) (3.) Deposits City Banks (1.7) (3.) (3.1) (3.9) (2.7) (2.5) (2.8) (2.7) (2.) (2.5) (3.2) and CDs Regional Banks (1.9) (3.1) (2.7) (2.8) (3.7) (3.3) (3.3) (3.2) (3.3) (3.3) (3.3) (Average) Regional Banks (1.3) (1.8) (1.1) (1.4) (2.7) (2.) (2.7) (2.3) (1.1) (1.1) (1.) (Notes) Interest rates are averages. The Nikkei Stock Average is as of month-end. (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. 16