Recent Economic Developments- Monthly Economic Report, August 2019 -

September 5, 2019

Cabinet OfficeGovernment of Japan

Contact for inquiries:Directorate General for Economic Research

+81-3-6257-1567

(Changed)

(Unchanged)

August

<Assessment of the current state of the Japanese economy>

July The Japanese economy is recovering at a moderate pacewhile weakness continuines mainly in exports.

The Japanese economy is recovering at a moderate pacewhile weakness continuines mainly in exports.

June The Japanese economy is recovering at a moderate pacewhile weakness in exports and industrial productioncontinues.

August

July

1

Note: ↑ denotes upward revision and ↓ denotes downward revision.

<Assessment of the current state of the Japanese economy>June July August

Private consumption Private consumption is picking up. Unchanged Unchanged

Business investment

Business investment is on theincrease at a moderate pace, while

weakness is seen recently inmachinery investment.

Unchanged Unchanged

Exports Exports are in a weak tone. Unchanged Unchanged

Industrial production Industrial production is in a weaktone recently.

Industrial production is flat recentlywhile weakness continues in some

sectors. （↑）Unchanged

Corporate profits Corporate profits hold firm at a highlevel.

Corporate profits hold firm at a highlevel. Unchanged

Firms’ judgments onbusiness conditions

Firms' judgments on currentbusiness conditions show

cautiousness, mainly amongmanufacturers.

Firms' judgments on currentbusiness conditions show

cautiousness further, mainly amongmanufacturers.（↓）

Unchanged

Employment situation

The employment situation isimproving steadily. Unchanged Unchanged

Prices Consumer prices are risingmoderately in recent months. Unchanged Unchanged

2

<Short-term prospects>

July

August

Weakness remains for the time being, but the economy is expected to continuerecovering, supported by the effects of the policies, while employment and incomesituation is improving. However, further attention should be given to the effects ofsituations over trade issues on the world economy, while the prospect of the Chineseeconomy, the uncertainty of situations and policies in overseas economies and theeffects of fluctuations in the financial and capital markets also need attention.

Weakness remains for the time being, but the economy is expected to continuerecovering, supported by the effects of the policies, while employment and incomesituation is improving. However, further attention should be given to the effects of theintensified tension over trade issues on the world economy, while the prospect of theChinese economy, the uncertainty of situations and policies in overseas economies andthe effects of fluctuations in the financial and capital markets also need attention.

June

Weakness remains for the time being, but the economy is expected to continuerecovering, supported by the effects of the policies, while employment and incomesituation is improving. However, further attention should be given to the effects ofsituations over trade issues on the world economy, while the prospect of the Chineseeconomy, the uncertainty of situations and policies in overseas economies and theeffects of fluctuations in the financial and capital markets also need attention.

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 will strengthen economic growth by boosting potential growth rate and expand virtuous cycle of growth anddistribution based on the " Basic Policy on Economic and Fiscal Management and Reform 2019 ~ A New Era of Reiwa: Challenges towardSociety 5.0 ~ ", the " Action Plan of the Growth Strategy " and so on. Moreover, in order to create a society in which everyone plays anactive role and feels secure, the Government will establish the social security system for all generations. Furthermore, looking ahead to theconsumption tax rate hike planned for October 1, 2019, the Government will take all possible measures towards economic and fiscalmanagement.

The Government will implement the FY2018 supplementary budget and the FY2019 budget including the temporal and special measuresswiftly and steadily.

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

<Policy stance>(Monthly Economic Report, August 30, 2019)

4

The real GDP (Gross Domestic Product) for the Apr.-Jun. 2019 period (First preliminary) increased by0.4%(or at an annualized 1.8%) from the previous quarter.

While net exports contributed negatively due to slowdown in overseas economies, private consumptionand business investment, which are pillars of domestic demand, increased steadily, indicating theJapanese economy is recovering at a moderate pace supported by solid domestic demand.

Nominal GDP reached a record high of 558 trillion yen.

－GDP: Apr. – Jun. 2019 (First Preliminary)－

Levels of nominal GDP and Real GDP

440

460

480

500

520

540

560

580

ⅠⅢⅠⅢⅠⅢⅠⅢⅠⅢⅠⅢⅠⅢⅠⅢⅠⅢⅠⅢⅠⅢⅠⅢⅠⅢⅠⅡ

2006 07 08 09 10 11 12 13 14 15 16 17 18 19

quarter

CY

s.a., ann., tril. yen

Nominal GDP558 tril. Yen

(Apr. - Jun. 2019)

Real GDP541tril. yen

(Apr.- Jun. 2019)

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

Note: Quarterly data is quarter-to-quarter change.Source: Cabinet Office.

%

Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ

Apr. - Jun. Jul. - Sep. Oct. - Dec. Jan. - Mar. Apr. - Jun.0.4 -0.5 0.4 0.7 0.4

[1.6] [-1.9] [1.6] [2.8] [1.8]

(1.5) (0.8) (0.4) (-0.3) (0.8) (0.3) (0.7)

(1.3) (0.8) (0.5) (-0.3) (0.7) (0.2) (0.5)

Private Consumption 1.0 0.5 0.4 -0.1 0.4 0.1 0.6Private Non-Resi.Investment 4.6 3.5 2.5 -2.6 2.7 0.4 1.5

Private ResidentialInvestment -0.7 -4.4 -1.9 0.8 1.3 0.6 0.2

Changes in PrivateInventories(Contributions)

(0.1) (0.1) (-0.1) (0.2) (0.1) (0.1) (-0.1)

(0.1) (-0.0) (-0.0) (-0.0) (0.1) (0.1) (0.2)

Public Investment 0.5 -4.0 -1.2 -1.8 -1.3 1.4 1.0

(0.4) (-0.1) (0.0) (-0.2) (-0.4) (0.4) (-0.3)

6.5 1.5 0.8 -2.1 1.2 -2.0 -0.14.0 2.1 0.8 -1.2 3.6 -4.3 1.6

0.0 0.0 0.6 -1.7 1.7 4.2 1.7

[at annual rate]

CY2017 CY2018

Domestic Demand(Contributions)

Real GDP growth rate

2018 2019

Nominal GDPgrowth rate

ExportsImports

Private Demand(Contributions)

Public Demand(Contributions)

Net Exports(Contributions)

1.9 0.7

5

70

75

80

85

90

95

100

280

285

290

295

300

305

310

ⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡ

2012 13 14 15 16 17 18 19

tril. yen

Private Consumption（left axis）

Business investment（right axis）

quarterCY

Source: Cabinet Office, IMF“World Economic Outlook”

Japan's economy has been supported by an increase in domestic demand, except in the Jul.-Sep. quarterof last year, when natural disasters occurred frequently. In particular, private consumption and businessinvestment have continued to increase since the second half of 2016.

Net exports has continued to be weak due to the slowdown in the global. Although the main scenario isthat the global economy will improve next year, it is necessary to pay attention to trade issues betweenthe United States and China.

－Domestic demand and Net exports－

Contributions to real GDP

Global Real GDP Growth Outlook (IMF)

quarterCY

-1

-0.5

0

0.5

1

1.5

４－６ ７－９ 10－12 １－３ ４－６

2018 19

q/q,%

Contributions from net exports

Real growth rateContributions

from domestic demand

quarterCY

Private consumption and Business investment

＋3.6％＋3.5％

＋3.3％＋3.2％

＋3.5％

3

3.2

3.4

3.6

3.8

4

Estim

ates

Jan20

19

Proje

ctions

Apr20

19

Proje

ctions

Jul20

19

Proje

ctions

Jul20

19

Proje

ctions

y/y、％

6

35

36

37

38

39

1 4 7 10 1 4 7 8

18 19

s.a.,thousand units,3MA

New automobile sales

－Private Consumption－Private consumption is picking up, supported by an improvement in employment and income conditions. In July, sales of air conditioner and sales at supermarket including summer goods decreased due to a delay of the end of the rainy season, while sales of automobile and television which are less affected by weather are on the increasing trend.

Sources: Japan Auto Dealers Association; Japan Light Motor Vehicle and Motorcycle Association; GfK Japan; Japan Chain Stores Association.Notes: Automobiles include light motor vehicles.

90

100

110

120

130

1 4 7 10 1 4 7

18 19

Sales of televisions.a.,CY2015=100,3MA

month

CY

month

CY

month

CY

100

102

104

106

108

110

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 4 6

2012 13 14 15 16 17 18 19

s.a.,CY2011=100

3MA (3 months moving average)

month

CY

Synthetic consumption index (real)

96

98

100

102

104

106

108

110

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 4 6

12 13 14 15 16 17 18 19

s.a.,CY2011=100Real wage income of employees

month

CY

100

110

120

130

140

150

1 4 7 10 1 4 7

18 19

s.a.,CY2015=100,3MASales of air conditioner

month

CY

85

90

95

100

105

1 4 7 10 1 4 7

18 19

s.a.,CY2015=100,3MA

Sales at supermarket

0

0

0

0

0

7

Exports volume index by region

- Exports -Exports are in a weak tone centering on to Asia. IT-related goods, the semiconductormanufacturing equipment continues to be weak, while electronic parts(IC) appears to have bottomed out. Automobiles exports upward trend has slowed down.

Sources: Ministry of Finance; Trade and Industry

Exports volume of IT-related goods

Exports volume of automobiles

95

100

105

110

115

1 4 7 10 1 4 7 10 1 4 7

2017 18 19

s.a. CY2015=100. 3MA

monthCY

90

95

100

105

110

115

120

125

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 72014 15 16 17 18 19

EUAsia

U.S.

Total

s.a. CY2015=100. 3MA

monthCY

July Total Asia U.S. EUMoM(3MA) -0.3% -1.3% -1.6% +0.1%

(share) (53.3%) (20.1%) (10.6%)

100

120

140

160

180

200

90

100

110

120

130

140

150

160

1 4 7 10 1 4 7 10 1 4 7

2017 18 19

Semiconductor manufacturing equipment

(Right scale)

IC

s.a. CY2015=100 s.a. CY2015=100

monthCY

8

Sources: Ministry of Economy, Trade and Industry; NIKKEI NEEDSNote: Operating profit is from listed companies excluding the power and finance industries.

- Industrial Production& Corporate Profits -

Industrial production has been flat recently, as exports are in a weak. On the other hand,Tertiary Industry Activity is increasing moderately, supported by solid domestic demand.As a result, operating income decreased in the manufacturing industry.

Production：NonmanufacturingProduction：Manufacturing

80859095100105110115120125130

707580859095

100105110

2014 15 16 17 18 19

Production machinery(Right scale)

Transport equipment(Right scale)Electronic parts and devices

(Right scale)

IIP(total)

CY

s.a., CY2015 = 100, 3MA

100

105

110

115

120

95

100

105

110

2014 15 16 17 18 19

Transport and Postal Activities(Right scale)

Employment and Worker Dispatching Services, etc.

(Right scale)

Information and Communications(Right scale)

ITA(total)

CY

s.a., CY2010 = 100, 3MA

0

2

4

6

8

10

1-3 4-6 7-9 10-12 1-3 4-6 7-9 10-12 1-3 4-6

2017 18 19

tril.yen

CY

quarter0

2

4

6

8

10

1-3 4-6 7-9 10-12 1-3 4-6 7-9 10-12 1-3 4-6

2017 18 19

tril.yen

CY

quarter

Operating profit : Manufacturing Operating profit : Nonmanufacturing

9

Sources: Ministry of Economy, Trade and Industry; Ministry of Land,Infrastructure,Transport and Tourism; Development Bank of Japan.

Business investment plans for FY2019 (“ DBJ ” Survey）

Business investment plans（FY2019＋11.5％ “ DBJ ” Survey）

Sectors Backgrounds

ChemicalMaterials for lithium ion batteries to be installed on EVs, investment to boost production capacity for cosmetic goods and daily necessities to cope with an increasing demand.

Transportationmachinery

Model change support(hybridization car), and continuation of investment for electric car.

Nonferrousmetals

Expanding production capacity for battery material to be installed on car and semiconductor material.

TransportInvestment to upgrade train operations, investment in safety, real estate development and investment for development of logistics facilities.

Real estate Continuation of urban development that is construction of international business base and large composite facilities.

WholesalingRetailing

Labor saving investment of convenience store, and development of logistics facilities in wholesaling(trading company etc.).

80

85

90

95

100

105

110

115

120

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 6

2013 14 15 16 17 18 19

s.a., CY2015=100, 3MA Manufacturing：FY2019＋13.5％ Nonmanufacturing：FY2019＋10.5％

Business investment is on the increase at a moderate pace, although weakness is seen recently in machinery investment.

500

600

700

800

900

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

14 15 16 17 18 19

MonthCY

s.a., billion yen, 6MA

Machinery investment

MonthCY

Construction investment

＋17.8＋12.2

＋38.7

05

1015202530354045

Chemical Transportationmachinery

Nonferrousmetals

y/y, %

＋16.3

＋8.5

＋11.4

02468

101214161820

Transport Real estate WholesalingRetailing

y/y, %

10

Source: Ministry of Land, Infrastructure,Transport and Tourism.

15

20

25

30

35

40

45

50

0

20

40

60

80

100

120

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

2013 14 15 16 17 18 19

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

month

CY

Owner-occupied housing(right scale)

Housing for rent(right scale)

Housing for sale(righe scale)

Total

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

1.2

1.4

1.6

1.8

2.0

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 4 6

2012 13 14 15 16 17 18 19

Amount of public construction completeds.a., tril.yen, 3MA

month

CY

Housing investment is almost flat Public investment is intensifiedHousing construction starts

80

90

100

110

120

130

140

24 months ago 18 months ago 12 months ago 6 months ago consumptiontax rate hike(Number of months by the tax rate hike)

Exception of contract deadline

tax rate hike on Apr. 1997(3%→5%)

【This time】tax rate hike scheduled on Oct. 2019

(8%→10%)

tax rate hike on Apr.2014(5%→8%)

average from 24 to 13 months before the tax rate hike = 100

Owner-occupied housing construction starts until the consumption tax rate hike

0.6

0.8

1.0

1.2

1.4

1.6

1.8

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 4 6

2012 13 14 15 16 17 18 19

Amount of public works orders receiveds.a., tril.yen, 3MA

Source: Ministry of Land, Infrastructure,Transport and Tourism.

month

CY

11

1.59

1.14

2.22.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

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

2014 15 16 17 18 19

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

Unemployment rate(right scale)

[Lowest level since 1992]

s.a., ratio s.a., %

Active job opening-to-appkicants ratio(Regular employees)

Unemployment rate and active job opening-to-applicants ratio

-50

-40

-30

-20

-10

0

10

20

30

2005 6 7 8 9 10 11 12 13 14 15 16 17 18 19

%pt

year

Large enterprises

Medium-sized enterprisesSmall enterprises "Insufficient"

"Excessive"

-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 4 7 10 1 4 7

2014 15 16 17 18 19

Core CPI(less fresh food)Core-core CPI

(less fresh food and energy)

CPI

y/y, %chg.

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 4 7 10 1 4 7

2014 15 16 17 18 19

s.a.,CY2015 = 100

Core CPI(less fresh food)

Core-core CPI(less fresh food and energy)

CPI

CPI(excluding impact of a comsumption tax increase)

Consumer prices are rising moderately in recent months

sources: Ministry of Internal Affairs and Communications; Bank of Japan.

The employment situation is improving steadily.Meanwhile, the sense of a labor shortage is at a high level.

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

Employment conditions

month

CY

month

CY

month

CY

12

- OverseasEconomies -

U.S.： The economy continues to recover. However, attention should be given to the risksincluding the effects of the intensified tension over U.S.-China trade issues.

Euro area：While the economy is recovering at a moderate pace, some weak movements are seen.Real GDP growth rate, U.S. （※） Real GDP growth rates, Euro area（※）

Germany’s Exports

-1

0

1

2

3

4

5

Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ

2016 17 18 19

Euro areaApr-Jun, 0.8%※

GermanyApr-Jun, -0.3%※

（Quarter）（Year）

-25

-15

-5

5

15

25

1 4 7 10 1 4 7 10 1 4 7 10 1 4 6

2016 17 18 19

Exports to China (excluding Hong Kong)（YoY,%）

＜Share in Germany’s Exports by country （in 2018）＞・Exports to China（excluding Hong Kong）：7.1％・Exports to U.K. ：6.2％

Overall

Exports to U.K.

（Month）（Year）

（※quarter-on-quarter, % (annualized))

-4

-2

0

2

4

6

Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ

2016 17 18 19

Apr-Jun 2019 2.0％※

Business fixedinvestment

Government expenditure

Housing investment

Private consumption

Net export

(Quarter）（Year）

（※quarter-on-quarter, % (annualized))

Inventory investment

(Notes) １．Adapted from U.S. Department of Commerce, Eurostat and Federal Statistical Office of Germany.２． Figures of Germany’s Exports are calculated in 3-month moving averages.

13