By Max Sato
In its May report, the government said the economy is “recovering at a moderate pace,” instead of “picking up moderately, although some weaknesses are seen.”
The word ‘recovery’ was last used in February 2020, when the government said the economy was still recovering moderately, although the weakness, mostly in manufacturing, was becoming more apparent amid sluggish exports.
The government largely repeated its request first made in May 2022 that the Bank of Japan should “achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increase.” It added the wage part in line with the BOJ’s latest policy statement released last month.
At its latest meeting on April 27-28, the bank’s policy board under the new governor, Kazuo Ueda, decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to continue seeking stable 2% inflation and support sustainable wage growth.
The board said in its statement that it will patiently continue with monetary easing “while nimbly responding to developments in economic activity and prices as well as financial conditions,” indicating that it could adjust its yield curve control framework to allow slightly higher interest rates.
For its part, the government will “swiftly and steadily implement” its “comprehensive economic measures for overcoming price increases and revitalizing the economy,” which was officially adopted in October and is backed by a second supplementary budget for fiscal 2022 that ended in March, as well as the fiscal 2023 budget.
The government will support “structural wage increases” – a cycle under which subsidized wage hikes would attract highly skilled workers and boost productivity, which in turn should lead to higher wages. It will promote “investment through public-private collaboration, including green transformation and innovation, to realize a virtuous cycle of growth and (wealth) distribution.”
The government revised up its view on the U.S. economy for the fist time in 21 months, seeing a moderate recovery. It also upgraded its view on South Korea for the first time in 15 months, noting there are signs that the downturn is coming to an end. The Thai economy is picking up, its first upgrade in nine months.
On the near-term outlook for the Japanese economy, the government is more upbeat, saying, “The economy is expected to continue recovering at a moderate pace with improving employment and income conditions, supported by the effects of the policies.” Last month, it said, “The pickup in the economy is expected to continue under the new normal, supported by the effects of the policies.”
“However, slowing down of overseas economies is a downside risk to the Japanese economy amid ongoing global monetary tightening and other factors,” the government warned, repeating its recent assessment. “Also, full attention should be given to price increases, supply-side constraints and fluctuations in the financial and capital markets.”
Key points from the monthly report:
The government upgraded its assessment on private consumption, which accounts for about 55% of the gross domestic product, for the first time in 10 months, saying it is “picking up,” instead of “picking up moderately.” Consumption has been improving along with the reopening of the economy without strict Covid public health rules. New vehicle sales are increasing on improved supply chains and more seniors are eating out.
In its monthly report, the government revised up its assessment of industrial production for the first time in nine months, saying factory output “is showing sings of a pickup.” Previously, it had said, output “has been in a weak tone recently.”
Japan’s industrial production posted a modest 1.1% rise on the month in March after a sharp 4.6% rebound in February and a 5.3% plunge in January, thanks to easing parts supply constraints for the auto industry and higher domestic and overseas demand for production machinery, revised data by the Ministry of Economy, Trade and Industry showed.
The METI’s survey of producers indicated that output is likely to post a modest 1.8% gain on the month in April (after adjusted for the data’s upward bias) before falling 2.0% in May.
The government also upgraded its assessment of exports for the first time in 29 months, saying they are “firm,” instead of “in a weak tone,”
Japanese export values rose 2.6% on the year in April for the 26th straight rise, with the pace of increase decelerating from 4.3% in March, 6.5% in February and 3.5% in January and following double-digit percentage gains in the prior months.
The increase in April export values was led by the recent pickup in automobile shipments, thanks to easing global supply constraints, in addition to higher demand for optical equipment and ships
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
* Private consumption is “picking up” vs. “picking up moderately” (the first upgrade in 10 months; last upgraded in July 2022; downgraded in February 2022).
* Business investment is “picking up” (unchanged; upgraded in October 2022; downgraded in December 2021).
* Housing construction is “firm” (unchanged; upgraded in June 2022; downgraded in February 2022).
* Public investment “has been firm” (unchanged; upgraded in August 2022; downgraded in November 2021).
* Exports are “firm” vs. “in a weak tone” (the first upgrade in 29 months; last upgraded in December 2020; downgraded in January 2023).
* Imports are “largely flat” (unchanged; upgraded in April 2023; downgraded in January 2023).
* Industrial production “is showing signs of a pickup” vs. “has been in a weak tone recently” (the first upgrade in nine months; last upgraded in August 2022; downgraded in March 2023).
* Corporate profits are “improving as a whole, although the pace has become moderate” (unchanged; upgraded in March 2022; downgraded in March 2023).
* Business sentiment is “showing signs of a pickup” (unchanged; upgraded in December 2022; downgraded in March 2022).
* The number of bankruptcies “has been rising” (unchanged; upgraded in March 2021; downgraded in April 2023).
* Employment conditions are “picking up” (unchanged; upgraded in July 2022; downgraded in May 2020).
* Consumer prices “have been rising” (unchanged; upgraded in May 2022; downgraded in March 2020).