monthly report of prospects for japan's economy · eu figure 3-1 the value of work in...

Monthly Report of Prospects for Japan's EconomyJune 2013

Macro Economic Research CentreEconomics Department

The Japan Research Institute, Limited

This report is the revised English version of the May 2013 issue of the original Japanese version.

http://www.jri.co.jp/english/periodical/

http://www.jri.co.jp/english/periodical/#http://www.jri.co.jp/english/periodical/�

- 1 -

The general situation of Japan’s economy – The economy is on a picking up trend

Monthly Report of Prospects for Japan's Economy June 2013 The Japan Research Institute, Limited

Figure 1-1 Economic Activity Figure 1-2 The Corporate Sector Figure 1-3 Overseas Demand

Figure 1-4 Employment and Income Figure 1-5 Private Consumption Expenditure Figure 1-6 Housing Investment

Housing starts are on a very moderate recovering trend. Condominium sales are still at a low level.

Private consumption expenditure has increased, as an improvement in consumer sentiment has had a positive effect.

The unemployment rate is at its lowest level since November 2008. Total cash earnings continue a weak trend.

* The shaded area indicates the phase of recession.

Exports to the US have bolstered the total exports. Imports stay at a high level, mainly in energy-related commodities.

Industrial production has increased for 4 months running. The inventory ratio is at its lowest level in 10 months.

The leading index of business conditions is at its highest level since October 2007, as sales forecast improves.

Source: The Japan Research Institute, Ltd. based on the data of The Cabinet Office, The Ministry of Internal Affairs and Communications. .

Source: The Ministry of Land, Infrastructure and Transport, Real Estate Economic Institute Co., Ltd..

Source: The Cabinet Office.

Source: The Ministry of Economy, Trade and Industry.

Source: The Bank of Japan.

Source: The Ministry of Internal Affairs and Communications, The Ministry of Health, Labour and Welfare.

65

70

75

80

85

90

95

100

105

110

2005 06 07 08 09 10 11 12 13

(CY2005=100)

Index of business conditions (Composite index, Coincident index)

Index of business conditions (Composite index, Leading index)

(Y/M)

70

80

90

100

110

120

130

140

150

2005 06 07 08 09 10 11 12 13

(CY2005=100)

Industrial inventoryratio index

Industrial production index

(Y/M)

70

80

90

100

110

120

130

140

2005 06 07 08 09 10 11 12 13

(CY2005=100)

Real exports

Real imports

(Y/M)

▲8

▲6

▲4

▲2

0

2

4

6

8

10

0

1

2

3

4

5

6

2005 06 07 08 09 10 11 12 13

(％)

(％)

Unemployment rate(left scale)

Total cash earnings(y/y % change,right scale)

(Y/M)

92

94

96

98

100

102

104

106

108

2005 06 07 08 09 10 11 12 13

(CY2005=100)

Real private consumptionintegrated estimates

Real private consumptionexpenditure index

(Y/M)

3

4

5

6

7

8

9

10

11

12

0

20

40

60

80

100

120

140

2005 06 07 08 09 10 11 12 13

(10,000 houses)

(1,000units)

Housing starts(annualised, left scale)

Condominiums sold(Metropolitan area, right scale,6-month moving average)

(Y/M)

- 2 -


Stock prices and sentiment have improved, yet the recovery in the economy is still limited Japan's economy has continued its recovery trend since the end of last year. Ahead of a recovery in earnest in the "real economy", stock prices have risen remarkably and consumer and business sentiment have improved considerably, in anticipation of favourable effects of economic measures of the government and aggressive monetary easing of the Bank of Japan. On the other hand, the pace of picking up in the "real economy" has not been so noticeable, as shown in the fact that the tempo of recovery in private consumption expenditure and exports has stayed moderate, and machinery orders received have weakened, especially in manufacturing. However, encouraging trends have been seen in the "real economy" as well. The industrial production index, which shows a trend in economic activity directly, increased in March by 0.9 per cent over the previous month, the fourth consecutive monthly rise. The production forecast index exhibited an increase in April. Accordingly, it is predicted that industrial production will continue its recovery trend on the whole, against the background of a pick-up in overseas economies and a reduction in inventory adjustment pressure. As for the household sector, real consumption expenditure has had a significant upswing since early this year, reflecting the improvement in consumer sentiment due to the rise in stock prices.

Figure 2-2 Industrial Production Index <seasonally adjusted>

Source: The Ministry of Economy, Trade and Industry.

Source: The Japan Research Institute, Ltd. based on the data of The Cabinet Office, The Ministry of Economy, Trade and Industry, The Ministry of Internal Affairs and Communications, The Ministry of Finance, Bloomberg L.P. Note: ※ Based on the Economy Watchers Survey.

Figure 2-1 Changes from the End of 2012 in Major Economic and Financial Indicators <each is rebased as Q4 2012 = 100>

90

100

110

120

130

140

Stoc

k pric

es

(rebased Q4 2012 =100)

【the markets】【sentiment】【the "real economy"】

REIT

Cons

umer

senti

ment

Busin

ess s

entim

ent ※

Real

priva

te co

nsum

ption

expe

nditu

re

Nomi

nal e

xport

s

Indus

trial p

roduc

tion

Mach

inery

orders

rec

eived

▲2

▲1

0

1

2

3

4

5

70

75

80

85

90

95

100

2011 12 13 13/2

Transport equipmentBasic materialsElectronic devicesElectrical machineryOthers

(CY2005=100) Change from theprevious month

(right scale)

Forecast index

(％)

Production index(left scale)

Forecast index(left scale)

(Y/M)

90

92

94

96

98

100

102

104

106

25

30

35

40

45

50

2011 12 13

Real consumption expenditure (right scale)Real consumption expenditure (excluding expenditure on houses and automobiles,right scale)

(CY2010＝100)

Consumer sentiment (left scale)

(Y/M)

Figure 2-3 Consumer Sentiment and Real Consumption Expenditure <seasonally adjusted>

Source: The Cabinet Office, The Ministry of Internal Affairs and Communications. .

- 3 -


Exports continue to recover moderately, yet trade balance remains in deficit The pace of increase in public investment seems to have taken a breather. However, the pace is expected to accelerate again, reflecting the implementation in earnest of the "Emergency Economic Measures" of the government. As for overseas demand, Japan's real exports have recovered moderately. Viewed by destination, exports to the US and Asia excluding China have been firm. In addition, exports to China have shown signs of bottoming out. The trade balance has continued to be in deficit since the Great East Japan Earthquake and tsunami disaster in March 2011. The recent widening trend in the trade deficit is due to the fact that the yen denominated amount of Japan's imports has increased in response to the depreciation of the yen since last autumn, especially as the share of foreign denominated trade in imports is larger than that in exports. However, it is predicted that the trade deficit will narrow gradually, because export quantity is expected to increase hereafter, reflecting an improvement in price competitiveness in overseas markets due to the fall of the yen. Meanwhile, the consumer price index excluding fresh food (the core CPI) declined in March by 0.5 per cent year on year, the fifth consecutive monthly fall. Viewed by item, while fuel and lighting have contributed to pushing up the core CPI reflecting the rise in electricity charges, deflationary pressure arising mainly from household appliances such as TV sets and air conditioners persists.

Source: The Japan Research Institute, Ltd. based on the data of The Ministry of Finance, The Bank of Japan. Note: Figures in the angle brackets show the shares in FY2012.

Figure 3-2 Real Exports by Region <seasonally adjusted>

Figure 3-3 The Core CPI <year-on-year % change>

18

19

20

21

22

23

24

25

12

13

14

15

16

17

18

19

20

2009 10 11 12 13

Nominal public investment on a GDP basis (annualised, right scale)The value of work in progressin public works (annualised,left scale)

(Trillion yen) (Trillion yen)

(Y/M,Q)

40

60

80

100

120

140

2007 08 09 10 11 12 13

(CY2007=100)

(Y/M)

WorldChina + HK <23>China + Asia excluding HK <32>US <18>EU <10>

Figure 3-1 The Value of Work in Progress in Public Works and Nominal Public Investment <seasonally adjusted, annualised>

Source: The Japan Research Institute, Ltd. based on the data of The Cabinet Office, The Ministry of Land, Infrastructure and Transport.

▲2.5

▲2.0

▲1.5

▲1.0

▲0.5

0.0

0.5

1.0

1.5

2.0

2.5

2008 09 10 11 12 13

(％)

(Y/Q)

Source: The Ministry of Internal Affairs and Communications. Note: The core CPI: excluding fresh food, The core CPI, US type: excluding food (but not alcoholic beverages) and energy.

食料石油製品

光熱・水道家具・家電

たばこ高校授業料

その他米国型コアＣＰＩ

コアＣＰＩ

FoodFuel, lighting andwater chargesCigarettes High school fees

Core CPI

Others

Petroleum productsHousehold appliances,furniture and cars

Core CPI, US type

- 4 -


Overseas economies would pick up, mainly led by the US and China As for the economic situation, it is predicted that the US economy will be firm, mainly in the household sector, against the background of an advance in household deleveraging and a recovery in the housing market, although economic activity will slow down temporarily through the middle of the year due to sequestration (automatic spending cuts). It is also expected that the Chinese economy will gain momentum, although the pace of acceleration will stay modest, reflecting the materialisation of the supporting economic measures of the government since last spring. In addition, the recent trend of the yen depreciation will likely have a positive effect on exports hereafter but with a time lag. Taking these factors into consideration, it is predicted that Japan's export environments will improve gradually. On the other hand, in European economies as a whole, it is projected that the real GDP change rate will continue in negative figures, due to austerity budgets, worsening employment and income environments, and so on. Because the share of exports to the EU in Japan's total exports is smaller than that of exports to the US or China on a value basis, the direct negative effect of the deterioration in European economies on Japan's economy would be limited. However, it should be noted that, if exports of China to the EU, which have a large share in China's total exports, decline again, an indirect negative effect on Japan's exports could be felt, via a decrease in exports to China.

Figure 4-1 Composite PMI in Manufacturing (the US + China + Europe) and Japan's Industrial Shipments for Exports <seasonally adjusted>

Source: The Japan Research Institute, Ltd. based on the data of Markit.

Figure 4-2 Home Sales in the US <annualised, seasonally adjusted>

Source: US Census Bureau, National Association of Realtors.

0

1

2

3

4

5

6

7

2005 06 07 08 09 10 11 12 130.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

(Million houses)

(Million houses)

(Y/M)

New residential sales (right scale)

Existing-home sales (left scale)

Figure 4-3 Unemployment Rate in Heavily Indebted Countries in Europe

Source: Eurostat. Note: Italy and Spain; seasonally adjusted, Greece; not seasonally adjusted and 3-month moving averages.

85

90

95

100

105

110

115

120

125

42

44

46

48

50

52

54

56

58

60

2010 11 12 13

Composite PMI (US, China, Europe,1-month advance, left scale)

The index of industrial shipmentsfor exports (right scale)

(CY2005＝100)

(Y/M)

Supply chains were cut off due to the quake and tsunami disaster during this period.

5

10

15

20

25

2005 06 07 08 09 10 11 12 13

(%)

(Y/M)

GreeceItalySpain

- 5 -


Public demand will boost real GDP growth rate in FY2013 considerably It is projected that public demand will boost economic activity considerably hereafter, due to an acceleration in reconstruction activity from the quake and tsunami disaster and the implementation of the "Emergency Economic Measures for the Revitalisation of the Japanese Economy". The value of contracts for public works has been on an increasing trend on the whole since early 2012, and, especially, that in disaster-stricken areas has recently increased rapidly. It is predicted that the value will increase further, as the emergency economic measures are also implemented. The implementation of the emergency package is expected to be in earnest through the middle of the year, judging from the survey which shows that over 90 per cent of the 10.3 trillion yen of central government expenditures have already been implemented or have started to be implemented through March this year. Based on the JRI macro model simulation, it is estimated that the implementation of 4.6 trillion yen of the 10.3 trillion yen will boost the real GDP growth rate directly by 0.8 percentage points in FY2013. However, the situation in public works, in fact, has had the problem of material and human bottlenecks from the stage of implementation of reconstruction measures, and accordingly, has involved a risk that the implementation could be delayed considerably. If the government does not try to resolve these bottlenecks and take necessary measures to implement the budget smoothly, the boosting effect of the large scale stimulus package could be more moderate and protracted.

Figure 5-2 The Scale of Emergency Economic Measures and their Direct Effect on Real GDP Growth in FY2013 (Estimate)

Source: Macro model simulation of The Japan Research Institute, Ltd. based on the data of The Cabinet Office, The Ministry of Finance, and others.

10.3The total amount of centralgovernment expenditures

Of this, the amountwhich can boost theGDP growth ratedirectly

4.6

Real GDP (FY2013) + 0.8

Domestic privatedemand (contribution) (+ 0.1)

Public demand(contribution) (+ 0.7)

(% points)

(Trillion yen) <the scale>

<the boosting effect>

Figure 5-1 Progress in Implementation of Emergency Economic Measures <as of March 26, 2013>

Implemented (11.1)

Implementation started(69.4)

Implementation will start by March (17.2)

Total amount10.3 trillion yen,

379 publicwork items

(%)Implementation will start in FY 2013 (2.4)

Source: The Cabinet Office. Note: The stages of implementation: "implemented"- the stage where Incorporated Administrative Agencies and other institutions have contracted with private enterprises for public works; "implementation started" - the stage where central government has provided Incorporated Administrative Agencies and other institutions with funds for public works.

Figure 5-3 The Ratio of Shorthandedness in Skilled Construction Workers <seasonally adjusted>

Source: The Ministry of Land, Infrastructure and Transport. Note: The 6 categories are plasterers and workers on high scaffolding, as well as formwork workers and reinforcing workers in construction and in civil engineering. The 8 categories are the 6 categories mentioned plus plumbers and electrical engineers.

▲4

▲3

▲2

▲1

0

1

2

3

2005 06 07 08 09 10 11 12 13

shorthanded

Total of 8 occupationalcategories in construction Total of 6 occupationalcategories in construction

(%)

(Y/M)

- 6 -


The weaker yen is favourable to export enterprises, yet causes a rise in import prices The exchange rates of the yen have fallen noticeably since last autumn, reacting to the aggressive monetary policy of the Bank of Japan. Although Japanese enterprises revised downwards the assumed exchange rate, which is the precondition of their business plans, from that in the previous fiscal year considerably, the actual exchange rates of the yen have fallen to a level well beyond the revised rate. The depreciation of the yen does have a positive effect of increasing corporate profits through an improvement in export environments. It also can be anticipated that export quantity will be boosted by the depreciation of the yen, yet with a time lag. However, it should be noted that correlation between Japan's real exports and exchange rates of the yen has weakened compared with the situation in the 1990s. In turn, correlation between real exports and economic activity in overseas economies has strengthened, which suggests that the economic situation in overseas economies is a more dominant factor to Japan's exports. This trend is against the background that Japanese manufacturers have promoted a move of their production facilities from domestic to overseas sites, in order to meet rapidly growing demand in emerging economies and other markets. In addition, the local subsidiaries of Japanese manufacturing have increased local buying-in. The depreciation of the yen has also caused a rise in import prices. An excessive fall of the yen could have a negative impact, not only on domestic demand-related industries but also on households, through an increase in yen-denominated payments.

Figure 6-1 The Yen / US Dollar Exchange Rate and Assumed Exchange Rates by Enterprises for the Fiscal Year

Source: The Bank of Japan, Bloomberg L.P.

Figure 6-3 Correlation Coefficients Relating to Japan's Real Exports

Figure 6-2 The Number of Local Subsidiaries of Japanese Manufacturing and the Ratio of Local Sales and Buying-in

75

80

85

90

95

11/1 4 7 10 12/1 4 7 10 13/1 4

yen depreciation

(Y/Q, M)

(Yen / US dollar)The exchange rate of the yenagainst the US dollarAssumed exchange rates byenterprises for the fiscal year

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1990 95 00 05 10(CY)

The correlation coefficient between Japan's real exports(y/y) and world real GDP (y/y)

The correlation coefficient between Japan's real exports(y/y) and real effective exchange rate (y/y) * -1

Source: The Ministry of Economy, Trade and Industry. Note: Local sales and buying-in include those to and from other local subsidiaries of Japanese manufacturing.

Source: The Japan Research Institute, Ltd. based on the data of IMF, The Bank of Japan, Bloomberg L.P.

40

45

50

55

60

65

70

4

5

6

7

8

9

2001 2006 2011 (FY)

(1,000) (％)

The number of local subsidiaries of Japanese manufacturing (left scale)The ratio of local sales in these subsidiaries(right scale)The ratio of local buying-in in these subsidiaries(right scale)

- 7 -


Private consumption continues to be firm, yet little advance in income environments is expected It is expected that private consumption expenditure will continue to be firm, because a rise in stock prices, in anticipation of favourable effects of economic and monetary policy of the government and the Bank of Japan, has produced an improvement in consumer sentiment and the "wealth effect". Based on the consumption function with compensation for employees and the Nikkei 225 stock average as its explanatory valuables, it is estimated that the rise in the stock average from Q4 2012 to Q1 2013 has boosted nominal consumption expenditure by 0.4 per cent. However, it is essential to a continued strong recovery in private consumption expenditure that income, which has stagnated since the second half of the 1990s, turn to increase. Although income has shown a slight advance recently, mainly in bonuses, reflecting the request of the government, labour's share of income is already at a high level mainly in nonmanufacturing. Also, enterprises are still under severe profit environments, shown in the fact that many enterprises secure corporate profits by cutting down on costs. Therefore, it cannot be expected for the time being that wages will increase considerably. If consumer prices start to increase through a rise in import prices due to the depreciation of the yen and other routes under the situation where little advance in income environments is expected, private consumption expenditure could have a downswing caused by reduced real purchasing power of households.

54

56

58

60

62

64

66

68

70

72

74

76

1980 85 90 95 00 05 10

(％)

(Y/Q)

All industriesManufacturingNonmanufacturing

Figure 7-1 The Boosting Effect of the Rise in Stock Prices on Nominal Consumption Expenditure (Estimate)

Figure 7-3 Labour's Share of Income <all scales of enterprises, 4-quarter moving averages>

Source: The Ministry of Finance. Note: Labour's share of income on a MOF basis = personnel expenses / (personnel expenses + current profits + interest payments + depreciation expenses) * 100

Figure 7-2 Compensation for Employees <annualised, seasonally adjusted>

230

240

250

260

270

280

1994 96 98 00 02 04 06 08 10 12

(Trillion yen)

(Y/Q)

Nominal compensation for employeesReal compensation for employees


The rate of increase in stock prices(Q4 2012 → Q1 2013) + 19.3%

The boosting effect on nominalprivate consumption expenditure + 0.4%

94

96

98

100

102

104

0.0

0.5

1.0

1.5

2.0

2006 07 08 09 10 11 12 13

(Y/Q)

(10,000 yen) (CY2010＝100)Nikkei 225 stock average(left scale)Nominal private consumptionexpenditure (right scale)

Source: Macro model simulation of The Japan Research Institute, Ltd. based on the data of The Cabinet Office, The Ministry of Internal Affairs and Communications and others.

- 8 -


The implementation of growth strategy is vital to recovery in business fixed investment Business fixed investment is still weak at present. Machinery orders received, which are a leading indicator for business fixed investment, have decreased mainly in manufacturing. As for the boosting effect of "quantitative and qualitative monetary easing" of the Bank of Japan, which is the first "arrow" of the Abe administration, on business fixed investment, it would be safer to estimate the effect modestly. It is true that there is a view that an increase in monetary base due to aggressive monetary easing of the BoJ leads to an increase in business fixed investment through the livening up of business activity of enterprises. However, judging from the experience in 2001, when the BoJ took quantitative monetary easing, it cannot necessarily be said that the progress in monetary easing resolved a sense of excessive production capacity. In addition, at present, the DI for lending attitude of financial institutions shows that the present lending attitude is already very accommodative. Japanese enterprises have tended to curb business fixed investment in domestic sites compared with their abundant cash flow, which has brought about the situation of "excessive funds". In order that excessively held cash flow be positively applied to business fixed investment, it is vital to implement in fact economic growth strategy, which has been set forth as the third "arrow" by the Abe administration. That is to say, it is essential that the administration implement in earnest structural reforms and regulatory reforms and raise long-term growth expectations, leading to the motivating of Japanese enterprises to increase their domestic investment.

Figure 8-1 Machinery Orders Received <seasonally adjusted, annualised>

Figure 8-3 Business Fixed Investment and Cash Flow <4-quarter moving averages>

Source: The Japan Research Institute, Ltd. based on the data of The Ministry of Finance. Note: 1. Cash flow = Current profits ＊ 0.5 + Depreciation expenses 2. Nonfinancials.

2

4

6

8

10

12

14

16

18

1985 90 95 00 05 10

(Trillion yen)

(Y/Q)

Current profits ＊ 0.5Depreciation expensesBusiness fixed investment

2

3

4

5

6

7

2007 08 09 10 11 12 13

(Trillion yen) ManufacturingNonmanufacturing (excludingshipbuilding and electric power)

(Y/M)

Source: The Cabinet Office. Source: The Bank of Japan.

Figure 8-2 Changes in Monetary Base and DIs for Lending Attitude and Production Capacity

▲25

▲20

▲15

▲10

▲5

0

5

10

15

20

25

30

35

40

45

50

-120

-100

-80

-60

-40

-20

0

20

40

60

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-12 -8 -4 0 +4 +8 +12 +16 +20

(the start of quantitative easing=0, Quarters)

(%)

Monetary base(y/y, left scale)

DI for production capacity("Insufficient "－"Excessive",right scale)

Projection of the BoJ

Comparison of changes between:Monetary easing starting in 2001 -- shown in bold linesMonetary easing starting in 2013 -- shown in thin lines

(% points)DI for lending attitude of financialinstitutions ("Accommodative"－"Severe", right scale)

- 9 -


Rushed demand expected in FY2013 before the rise in the consumption tax rate The economic activity in the second half of FY2013 to March 2014 will have a considerable upswing due to rushed demand before the rise in the consumption tax rate, which is scheduled to be raised from 5 to 8 per cent in April 2014. Significant rushed demand is expected to be seen mainly in private consumption expenditure and housing starts, just as in the past, for example, in FY1996, when the consumption tax rate was raised the last time in FY1997. On the other hand, the economic activity after the start of FY2014, when the rate is raised, will suffer a reactionary decline. Further, the rise in prices due to the consumption tax rise will reduce private consumption expenditure in real terms through a reduction in the purchasing power of households. Accordingly, real GDP in FY2014 is estimated to be 1.4 per cent less than in the case of no tax rise, based on the JRI macro model simulation. However, it is expected that a picking up in overseas demand in FY2014 could offset partly the negative effect caused by the rise in the consumption tax rate during that period. Based on the projections of the US and Chinese economies in FY2014, together with the estimates of the income elasticity of Japan's exports to the US and China, real exports are projected to increase by at least about 3 per cent, just through the increase in exports to these two countries. In addition, the depreciation of the yen will have a positive effect on exports.

Figure 9-2 Estimate of the Effect of Consumption Tax Rise in FY 2014 on Demand in FY2014 <5% → 8% in April 2014>

Source: Macro model simulation by The Japan Research Institute, Ltd. based on the data of The Cabinet Office. .

96

97

98

99

100

101

102

103

1996 97 98

104.0

104.5

105.0

105.5

106.0

106.5

107.0

107.5

個人消費デフレーター（右目盛）名目個人消費（左目盛）

実質個人消費（左目盛）

(Y/Q)

(FY1996=100) (CY2005=100)

The rise in the consumption tax rate 3% → 5%

Private consumption expenditure deflator (right scale)Nominal private consumption expenditure (left scale)Real private consumption expenditure (left scale)


Figure 9-1 Private Consumption Expenditure Before and After Consumption Tax Rise <1996 - 1998>

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

US China

Figure 9-3 Income Elasticity of Japan's Exports to the US and China (estimate)

Source: The Japan Research Institute, Ltd. based on the data of The IMF, The Ministry of Finance, The Bank of Japan, and so on.

(%)

Real GDP

Real privateconsumptionexpenditure

The total downswing - 1.4 - 1.9

Rusheddemand factor

- 0.6 - 0.8

Price rise factor - 0.8 - 1.1

- 10 -


Prospects for Japan's economy - Projected real GDP change; 2.6% in FY2013 and -0.4% in FY2014 (1) In the first preliminary estimates of GDP, Japan's real GDP in the January-March period in 2013 increased by 3.5 per cent on a seasonally adjusted, annualised percentage change from the previous quarter basis, the first considerably positive figure in four quarters. This high GDP growth rate has made a picking-up in Japan's economic activity more visible. Viewed by demand item, private consumption expenditure pushed up the quarterly growth rate by 2.3 percentage points. Especially, expenditure on expensive items including durable goods has been solid, due to the improvement in consumer sentiment and the "wealth effect" against the background of the rise in stock prices. Exports also increased, mainly led by exports to the US where firm economic growth continues and to Asia. Because the rate of increase in exports was more than that in imports, contribution of net exports to the quarterly GDP growth rate during that period turned positive for the first time in 4 quarters. On the other hand, business fixed investment declined for 5 quarters running, because the attitude of enterprises towards business fixed investment has been persistently cautious, although the pace of decrease has slowed down. (2) It is also predicted that the quarterly real GDP growth rate in the April-June and July-September periods in 2013 will continue to be high, as both domestic and overseas demand will be boosted and business activity will be brisk. This is due to the following factors: 1) public investment is predicted to increase noticeably as the "Emergency Economic Measures" of the Abe administration are implemented in earnest; 2) export environments will improve, reflecting firm economic growth in the US and the depreciation of the yen since last autumn; 3) the advance in consumer sentiment due to the rise in stock prices will continue to have a favourable effect on private consumption expenditure; and 4) the attitude of enterprises towards business fixed investment is expected to become positive gradually, due to a recovery in corporate profits and an improvement in business sentiment. In the second half of FY2013 starting in October and ending in March 2014, it is projected that the boosting effect on a quarter-on-quarter basis of the stimulus package will be decreasing, yet, in turn, rushed demand for consumption expenditure on durable goods and housing investment before the rise in the consumption tax rate, which is scheduled in April 2014, will push up economic activity during that period. As a result, the real GDP growth rate will likely be 2.6 per cent in FY2013 as a whole, a relatively high yearly growth rate. (3) Looking ahead, it is predicted that real GDP in the April-June period in FY2014 will decline considerably over the previous quarter, due to a reactionary decline after the rushed demand caused by the rise in the consumption tax rate, in addition to a continued reactionary fall after the rapid rise in public investment. Although the quarterly real GDP change rates will be positive again from the July-September period onwards, because expected firm economic growth in overseas economies mainly in the US and a depreciated level of the exchange rate of the yen will contribute to improving export environments during that period, the real GDP growth rate in FY2014 as a whole will likely decline by 0.4 per cent over the previous fiscal year.

- 11 -


Figure 11 Projections for GDP Growth and Main Indicators of Japan ( as of May 16, 2013 )

Source: The Cabinet Office; The Ministry of Internal Affairs and Communications; The Ministry of Economy, Trade and Industry; The Ministry of Finance. The projection figures are based on those of The Japan Research Institute, Ltd. Note 1: "▲" indicates minus. 2: It is assumed that the consumption tax rate will be raised from 5% to 8% in April 2014. 3: The actual result in CY 2012 and the assumptions on the real GDP growth rate in 2013 in major overseas economies: the US 2.2%, 1.9%; the euro area ▲ 0.6%, ▲ 0.7%; China 7.8%, 7.9%, respectively.

(seasonally adjusted, annualised % changes from the previous quarter)CY2012 CY2013 CY2014 CY2015

4～6 7～9 10～12 1～3 4～6 7～9 10～12 1～3 4～6 7～9 10～12 1～3(Actual) (Projection) (Projection) (Projection) (Actual) (Projection)

Real ＧＤＰ ▲ 0.9 ▲ 3.5 1.0 3.5 3.7 3.5 2.9 1.8 ▲ 7.5 1.3 1.6 2.3 0.2 1.2 2.6 ▲ 0.4

Private Consumption Expenditure 0.8 ▲ 1.6 1.8 3.7 0.9 1.0 3.8 6.1 ▲ 13.2 0.9 0.5 1.6 1.5 1.6 2.1 ▲ 1.5

Housing Investment 9.3 6.3 15.0 7.9 1.6 15.3 11.5 ▲ 8.3 ▲ 20.3 ▲ 13.2 ▲ 4.8 ▲ 1.5 3.7 5.3 7.7 ▲ 8.2

Business Fixed Investment ▲ 1.1 ▲ 12.5 ▲ 5.9 ▲ 2.6 3.6 3.8 3.8 4.8 3.0 3.6 4.3 4.1 4.1 ▲ 1.5 0.4 3.9

(▲ 1.6) ( 0.5) (▲ 0.4) (▲ 0.8) ( 0.0) ( 0.0) ( 0.0) (▲ 0.3) ( 0.3) ( 0.0) ( 0.1) ( 0.1) (▲ 0.5) (▲ 0.1) (▲ 0.1) ( 0.0)

Government Consumption Expenditure 2.0 1.6 2.9 2.3 0.3 0.2 0.5 0.7 0.6 0.5 0.6 0.5 1.4 2.6 1.1 0.6

Public Investment 27.7 14.1 11.9 3.4 59.4 36.3 ▲ 12.0 ▲ 42.5 ▲ 29.8 ▲ 4.3 ▲ 2.6 ▲ 0.8 ▲ 2.2 15.2 15.6 ▲ 18.0

(▲ 1.2) (▲ 2.3) (▲ 0.2) (　 1.5) (　 0.0) (　 0.2) (　 0.3) (　 0.6) (　 2.3) (　 0.7) (　 0.8) (　 0.8) (▲ 1.0) (▲ 0.8) ( 0.2) ( 1.0)

Exports of Goods and Services ▲ 0.2 ▲ 16.5 ▲ 11.3 16.1 5.9 6.3 6.9 7.7 6.6 5.5 5.9 5.9 ▲ 1.6 ▲ 1.3 4.2 6.5

Imports of Goods and Services 7.2 ▲ 1.2 ▲ 8.5 4.0 5.0 4.6 4.4 3.8 ▲ 6.3 1.5 1.4 1.8 5.3 3.8 2.4 0.5 (% changes from the same quarter of the previous year)

Real ＧＤＰ 4.0 0.3 0.5 0.2 1.1 3.0 3.2 3.1 0.2 ▲ 0.3 ▲ 0.9 ▲ 0.6 0.2 1.2 2.6 ▲ 0.4 Nominal ＧＤＰ 3.0 ▲ 0.5 ▲ 0.2 ▲ 1.0 0.6 2.7 3.5 4.0 2.3 1.6 0.9 1.4 ▲ 1.4 0.3 2.7 1.6 GDP deflator ▲ 1.0 ▲ 0.8 ▲ 0.7 ▲ 1.2 ▲ 0.5 ▲ 0.2 0.2 0.9 2.1 1.9 1.9 2.1 ▲ 1.7 ▲ 0.9 0.1 2.0

▲ 0.1 ▲ 0.3 ▲ 0.1 ▲ 0.3 0.0 0.4 0.5 0.6 2.9 3.1 3.1 3.2 0.0 ▲ 0.2 0.4 3.1 Industrial Production Index 5.3 ▲ 4.6 ▲ 5.9 ▲ 7.9 ▲ 3.2 2.3 6.5 4.3 1.2 ▲ 0.0 ▲ 0.2 ▲ 0.7 ▲ 1.0 ▲ 3.4 2.4 0.1

Unemployment Rate (％) 4.4 4.2 4.2 4.2 4.1 4.1 4.0 4.0 4.0 4.0 3.9 3.9 4.5 4.3 4.0 3.9 Current Account Balances (trillion JY) 1.14 1.58 ▲ 0.11 0.49 0.42 0.62 1.04 1.00 1.44 2.08 2.56 3.00 7.62 3.25 3.08 9.08

Share of Nominal GDP (％) 1.0 1.4 ▲ 0.1 0.4 0.4 0.5 0.8 0.8 1.2 1.7 2.0 2.4 1.6 0.7 0.6 1.8 Exchange Rates (JY/US$) 80 79 81 92 100 101 102 104 106 108 110 112 79 83 102 109 Import Price of Crude Oil (US$/barrel) 123 106 113 112 110 110 110 110 110 110 110 110 114 113 110 110

Consumer Price Index (excluding fresh food)

FY2011 FY2012 FY2013 FY2014

Private Inventories (percentage points contribution)

Net Exports (percentage points contribution)

monthly report of prospects for japan's economy · eu figure 3-1 the value of work in...

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