recent economic developments - cabinet officeeffects of fluctuations in the financial and capital...

Recent Economic Developments

March 26, 2018

Cabinet OfficeGovernment of Japan Contact for inquiries:

Directorate General for Economic Research+81-3-6257-1567

March

February

<Assessments of the current state of the Japanese economy>

January The Japanese economy is recovering at a moderate pace.

The Japanese economy is recovering at a moderate pace.

The Japanese economy is recovering at a moderate pace.

(Unchanged)

(Unchanged)

1

Note: ↑ denotes upward revision.

<Assessments ofthecurrentstateoftheJapaneseeconomy>January February March

Private consumption Private consumption is pickingup. (↑) Unchanged Unchanged

Business investment Business investment is increasingmoderately. Unchanged Unchanged

Exports Exports are picking up. Unchanged Unchanged

Industrial production Industrial production isincreasing moderately. Unchanged Unchanged

Corporate profits Corporate profits are improving. Unchanged Unchanged

Firms’ judgments on businessconditions

Firms’ judgments on currentbusiness conditions are

improving.Unchanged Unchanged

The employment situation The employment situation isimproving steadily. (↑) Unchanged Unchanged

Prices Consumer prices are flat. Unchanged Consumer prices are risingmoderately in recent months.

2

<Short-term prospects>

The economy is expected to continue recovering, supported by the effects of the policies, while employment andincome situation is improving. However, attention should be given to the uncertainty in overseas economies and theeffects of fluctuations in the financial and capital markets.



January

February

March

(Unchanged)

(Unchanged)

3

The Government will make its utmost efforts to ensure the economy overcomes deflation and achieve economic revitalization and fiscalconsolidation simultaneously, in addition to make effort toward the reconstruction and revitalization from the Great East Japan Earthquakeand the restoration and reconstruction from the 2016 Kumamoto Earthquake. To this end, the Government steadily implements the "BasicPolicies for Economic and Fiscal Management and Reform 2017", the "Growth Strategy 2017", the "Regulatory Reform Work Plan", the"Basic Policies for Overcoming Population Decline and Vitalizing Local Economy in Japan 2017", and the "Japan's Plan for the DynamicEngagement of All Citizens". Moreover, in order to tackle the enormous challenge of the declining birthrate and aging population bypromoting Supply System Innovation and Human Resources Development as two wheels of a cart, the Government will steadily implementsthe "New Economic Policy Package" deicided in last December. About work style reform, based on "The Action Plan for the Realization ofWork Style Reform" decided in last March, the Government will submit bills to the Diet at an early date, and try to pass the bills. Inaddition, the Government implements the FY2017 supplementary budget swiftly and steadily. And the Government works for early passageof the FY2018 budget and the related bills.

The Government continuously pursues to expand the economic virtuous cycles which cover local areas, SMEs and small-scale businesses,through directing growing corporate profits towards investment, wage increase and further improvement in the employment situation.

The Government expects the Bank of Japan to achieve the price stability target of two percent in light of economic activity and prices.

<Policy stance>(March)

4

%2016

0.3 0.5 0.6 0.6 0.4[1.1] [1.9] [2.4] [2.4] [1.6]

(0.4) (1.2) (-0.1) (0.4) (0.9) (0.1) (0.4)

(0.1) (1.1) (0.1) (0.4) (0.6) (0.2) (0.4)Private Consumption 0.1 1.1 0.0 0.3 0.9 -0.6 0.5Private Non-Resi.Investment 0.6 3.0 1.5 0.2 1.2 1.0 1.0Private ResidentialInvestment 5.6 2.6 0.8 1.2 0.9 -1.7 -2.6Changes in PrivateInventories (-0.2) (-0.1) (-0.2) (0.1) (-0.1) (0.4) (0.1)

(0.2) (0.1) (-0.1) (0.0) (0.3) (-0.1) (-0.0)Public Investment -0.1 1.2 -1.9 -0.2 4.8 -2.6 -0.2

(0.6) (0.6) (0.4) (0.1) (-0.3) (0.5) (-0.0)1.3 6.8 2.7 2.0 0.0 2.1 2.4-1.9 3.6 0.6 1.7 1.9 -1.2 2.9

1.2 1.5 0.2 0.3 0.9 0.7 0.3

<0.3> <-0.2> <-0.1> <-0.8> <-0.3> <0.2> <0.1>

2016

2017

Jan. - Mar. Apr. - Jun. Oct. - Dec.Jul. - Sep.2017

Oct. - Dec.

Public Demand(Contributions)

Real GDP growth rate

[at annual rate]0.9 1.7

Nominal GDP growth rate

GDP Deflator<Year on Year>

Net Exports(Contributions)

ExportsImports

Domestic Demand(Contributions)Private Demand(Contributions)

440

460

480

500

520

540

560

ⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣ

2006 07 08 09 10 11 12 13 14 15 16 17

s.a., ann., tril. yen.

Nominal GDP

551 tril. yen(Oct. - Dec. 2017)

Real GDPGrowing for

eight consecutive quartersFrom Jan. – Mar. 2016

CYquarter

GDP: Oct. – Dec. 2017 (Second Preliminary)

Since Apr. – Jun. 1986 -Jan. – Mar. 1989

Changes and contributions to changes in real GDP(seasonally adjusted)

Nominal and real GDP

Source: Cabinet Office

5

Source : Cabinet Office

Private Consumption (Real) New Car Sales Home Electronic Appliances

Tourism Eating-Out

5.6

5.8

6.0

6.2

2013 14 15 16 17

trillion yen

CY

Sources: Ministry of Internal Affairs and Communications, Ministry of Economy, Trade and IndustryJapan Tourism Agency, Japan Automobile Dealers Association, Japan Light Motor Vehicleand Motorcycle Association

21

22

23

24

25

26

2013 14 15 16 17

trillion yen

CY

3.8

4.0

4.2

4.4

4.6

4.8

2013 14 15 16 17

million units

CY

Economic Recovery 1: Household Sector

292

293

294

295

296

297

298

299

300

301

2013 14 15 16 17

trillion yen

CY

18

18.5

19

19.5

20

2013 14 15 16 17

trillion yen

CY

＋0.1%

＋1.1%

6

0.0

0.5

1.0

1.5

2.0

2.5

3.0%

Outlook of FY2017

Outlook of FY2018

-5

0

5

10

15

20

25

30

Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ

2012 13 14 15 16 17

105

100

95

110

115

120

125

130

Source：Ministry of Finance

Business Investment（by industry）

Economic Recovery 2： Business investmentForecasted growth rate of industries by firms

The order backlog of machinery related to factory automation

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1

2013 14 15 16 17 18

0

300

600

900

monthCY

Industrial robots

Metal cutting machine

s.a., bil. yen

Non-manufacturing

Manufacturing

Conveying, elevating, materials handling machinery

quarter

%, compared with fourth quarter of 2012, sa

Source：Cabinet Office; Machinery Orders

Source：Cabinet Office; Annual Survey of Corporate Behavior

CY

7

65.95

1.6 1.5

1.8

2.1

2.4

2.7

3.0

61

62

63

64

65

66

67

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1

2013 14 15 16 17 18

Employed person

Unemployed person(right scale)

s.a., million people s.a., million people

month

CY

1.59

1.07

2.4

2.0

2.5

3.0

3.5

4.0

4.5

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1

2013 14 15 16 17 18

Active job openings-to-applicants ratio[Highest level since January 1974]

Active job openings-to-applicants ratio(Regular employees)

Unemployment rate（right scale）

[Lowest level since April 1993]

month

CY

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Regular employeesPart-timeFull-time

CY

s.a., ratio

2012 2013 2014 2015 2016 2017 2018Increase in wages

(Excluding bonus) (%) 1.79 1.74 2.16 2.43 2.08 2.06 2.16

Increase in pay scale(So-called "base-up") (%) - - - 0.8 0.47 0.43 0.77

Increase in wages(Excluding bonus) (%) 1.72 1.71 2.07 2.2 2.0 1.98

Increase in pay scale(So-called "base-up") (%) - - - 0.69 0.44 0.48

Bonus（Number of months） 4.37 4.49 4.78 4.84 4.86 4.81

Bonus（Thousand yen） 1,421 1,451 1,539 1,552 1,532 1,535

CY

FirstResult

FinalResult

Unemployment rate and active job openings-to-applicants ratios.a., ratio s.a., %

The number of employed persons and unemployed persons

Source: Ministry of Internal Affairs and Communications

Spring wage negotiations

Active job openings-to-applicants ratio (long-term)

Source: Japanese trade union confederation

Source: Ministry of Health, Labour and Welfare

Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare

Economic Recovery 3： Employment situation 1

8

Composition of employees : Increase in female and elderly

0

0.5

1

1.5

2

2.5

3

Male Female

million people

0.64

2.31

65 years old ～

15～64

30.99(59%)

31.88(49%)

18.98(36%)

25.35(39%)

2.41(5%)

8.07(12%)

0

10

20

30

40

50

60

70

1974 2017

15～64Male

15~64Female

65 years old ～Male and Female

52.38

65.30million people

1.050.73

0

0.5

1

1.5

2

2.5

3

Male Female

65 years old ～

15～64

million people

Number of unemployed persons Not in labour force persons who want to work

10

20

30

40

50

60

70

80

90

2000

2017

Total%

2012

Female labor participation rate


0

10

20

30

40

50

60

70

80

25～29 30～34 35～39

2017

2000

2012

Labor participation rate of married female%

years old

years old

Not in work population




Economic Recovery 3： Employment situation 2

9

Private Consumption

100

102

104

106

108

110

112

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1

2013 14 15 16 17 18

s.a, CY2011＝100

3MA(3 months moving average)

monthCY

Real wage income of employees

-3

-2

-1

0

1

2

3

4

5

Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ 1

2015 16 17 18

y/y contribution, %

Real wage income of employeesNumber of employees

Nominal wage

Inflation

Synthetic consumption index (Real)

95

100

105

110

115

120

2015 16 17

CY2015＝100

CY

TV

Washing Machine

Air Conditioner

Refrigerator

Eating-out

94

96

98

100

102

104

106

108

110

Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ

2015 16 17

Average Customer Spend

Number of Customers

CY2015＝100

Total Sales

Source: Cabinet Office

Home appliances (purchased unit price)

Source: GfK Japan

Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare; Cabinet Office

quarter,monthCY

quarterCY

Source: Japan Food Service Association

10

1.0

1.2

1.4

1.6

1.8

2.0

2.2

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1

2011 12 13 14 15 16 17 18

monthCY

s.a., tril. yen, 3MA

Housing construction

Amount of public construction completed

Source: Ministry of Land, Infrastructure, Transport and Tourism

150

200

250

300

350

400

450

500

0

200

400

600

800

1,000

1,200

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1

2013 14 15 16 17 18

Housing for rent(right scale)

Owner-occupied housing(right scale)

Housing for sale(right scale)

Total

Housing construction starts

s.a., ann., thousand units, 3MA s.a., ann., thousand units, 3MA

monthCY

Source: Ministry of Land, Infrastructure, Transport and Tourism

Public investment

11

　

7580859095100105110115120125130

50

60

70

80

90

100

110

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 122013 14 15 16 17 18

s.a., CY2010 = 100, 3MA

Asia (right scale)U.S. (right scale)

EU (right scale)

Total

s.a., CY2010 = 100, 3MA

monthCY

80

90

100

110

120

130

140

60

70

80

90

100

110

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 32014 15 16 17 18

s.a., CY2010 = 100, 3MA

Electronic parts and devices(right scale)

Transportequipment

(right scale)

General-purpose,production

and businessoriented

machinery(right scale)

ForecastIIP (Jan. 2018)

MoM(3MA) ▲1.2%

s.a., CY2010 = 100, 3MA

Industrial ProductionProduction by industry

Source: Ministry of Economy, Trade and Industry

monthCY

Exports

MoM(3MA)

Total Asia U.S. EU

Feb. ▲1.2％ ▲2.6％＋0.8％＋1.4％

Exports volume index by region

Current account

-20

-10

0

10

20

30

40Goods

Services Secondary income

Primary incomeCurrent account

CY

trillion yen

Source: Ministry of Finance, Bank of Japan

Source: Ministry of Finance

12

0.00.20.40.60.81.01.21.41.6

Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ

2012 13 14 15 16 17

Electrical machinerys.a., trillion yen

Operating profits

Currentprofits

0

20

40

60

80

Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ

2012 13 14 15 16 17

s.a., 2012 Oct-Dec=100

Non-manufacturing

Manufacturing

quarterCY

120

100

140

160

180

Current profits Industries increasing in profit(Manufacturing)

Source: Ministry of Finance

quarterCY

0.5

1.0

1.5

2.0

2.5

3.0


2012 13 14 15 16 17

Wholesaling

s.a., trillion yen

Current profits

Operating profits

0.00.20.40.60.81.01.21.41.61.82.0


2012 13 14 15 16 17

Motor vehicless.a., trillion yen

Currentprofits

Operating profits

1.51.71.92.12.32.52.72.93.1


2012 13 14 15 16 17

Transport & Information communication

Operating profits

Current profits

quarterCY

Industries increasing in profit(Non-manufacturing)

s.a., trillion yen

quarterCY

quarterCY

Corporate profits

13

Prices

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

1 2 3 4 5 6 7 8 9 1011 12 1 2

2017 18

Durable goods

FoodOther goodsTextilesGoods

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

1 2 3 4 5 6 7 8 9 10 11 12 1 2

2017 18

Mobile phone charges

Public services

Personal services

Eating out

Rent

Services

Main rising items

Rice (Non-glutinous rice)

Beer

Raw meats (Pork, Beef, Chicken)

"Umeboshi" (Pickled plums)

Salted salmon

Textiles Towels

Other goods Car Tires

Food

CPI (Consumer Price Index)

98.5

99.0

99.5

100.0

100.5

101.0

101.5

102.0

4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 22014 15 16 17 18

s.a., CY2015 = 100

Core-core CPI (less fresh food and energy)

month

CY

Core CPI (less fresh food)

CPI

CPI (excluding impact of a consumption tax increase)



0.5%

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 2

2014 15 16 17 18

y/y, % chg.

Core-core CPI (less fresh food and energy)

CPICore CPI (less fresh food)

monthCY

month

CY

month

CY

Goods prices in CPI (less fresh food and energy)

Services prices in CPI

y/y contributions, % chg.

y/y contributions , % chg. Main rising items



Hotel room charges

Charges for package tours to overseas

Medical treatment

Delivery charge

"Yakiniku" (Grilled meat)

Sushi

Beer

Personalservices

Publicservices

Eating out

14

(Reference 1) Economic Expansion Period

60

70

80

90

100

110

120

130

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

1985/6Peak

1986/11Trough

1991/2Peak

1993/10Trough

1997/5Peak

1999/1Trough

2000/11Peak

2002/1Trough

2008/2Peak

2009/3Trough

2012/3Peak

2012/11Trough

CY

11th cycle10th cycle 12th cycle 13th cycle 14th cycle 15th cycle

CY2010 = 100, SA

Index of business conditions

Rank of the length of the expansion period Rank Period

1 73 months 2002 Feb. – 2008 Feb.2 57 months 1965 Nov. – 1970 Jul., “Izanagi”3 51 months 1986 Dec. – 1991 Feb., “Bubble”

Note: Shaded areas indicate recession periods.

This time 64 months 2012 Dec. – ああああああああ

15

380

400

420

440

460

480

500

520

540

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

trillion yen

Real GDP

Output gap

Potential GDP

CY

Note: Shaded areas indicate recession periods.

year, quarter, % 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172017

Ⅰ Ⅱ Ⅲ Ⅳ

Potential GDP growth rate 0.3 0.0 ▲0.0 0.2 0.5 0.7 0.9 0.9 1.0 1.0 1.1 1.1 1.1 1.1 1.1

Real GDP growthrate 1.7 ▲1.1 ▲5.4 4.2 ▲0.1 1.5 2.0 0.4 1.4 0.9 1.7 1.9 2.4 2.4 1.6

Output gap 1.5 0.3 ▲5.1 ▲1.3 ▲1.9 ▲1.1 ▲0.0 ▲0.6 ▲0.2 ▲0.3 0.4 ▲0.1 0.2 0.6 0.7

(Reference 2) Output gap

16

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