Recent Economic Developments- Monthly Economic Report, June 19 2020 -

June 29, 2020

Cabinet OfficeGovernment of Japan

(Changed)

(Changed)

June

<Assessment of the current state of the Japanese economy>

May The Japanese economy is worsening rapidly in anextremely severe situation, due to the Novel Coronavirus.

The Japanese economy is still in an extremely severesituation due to the Novel Coronavirus, but it almoststopped deteriorating.

April The Japanese economy is getting worse rapidly in anextremely severe situation, due to the Novel Coronavirus.

June

May

1

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

<Assessment of the current state of the Japanese economy>April May June

Private consumptionPrivate consumption is decreasingrapidly, due to the influence of the

infectious disease. (↓)Unchanged

Private consumption is showingmovements of picking up recently

as the state of emergency waslifted.(↑)

Business investment Business investment is almost flat. Business investment is in a weaktone recently. (↓) Unchanged

ExportsExports are decreasing recently, due

to the influence of the infectiousdisease. (↓)

Exports are decreasing rapidly, dueto the influence of the infectious

disease. (↓)Unchanged

Industrial productionIndustrial production is decreasing,

due to the influence of the infectiousdisease. (↓)

Unchanged Unchanged

Corporate profitsCorporate profits are decreasing

rapidly, due to the influence of theinfectious disease. (↓)

Unchanged Unchanged

Firms’ judgments onbusiness conditions

Firms’ judgments on currentbusiness conditions are deterioratingrapidly, due to the influence of the

infectious disease. (↓)

UnchangedFirms' judgments show signs of

improvement, although some severeaspects remain.(↑)

Employmentsituation

Employment situation is seen someweak movements lately, due to theinfluence of the infectious disease.

(↓)

Employment situation shows someweak movements further, due to theinfluence of the infectious disease.

(↓)

Employment situation is showingweakness, due to the influence of

the infectious disease.

Prices Consumer prices are flat recently. Consumer prices are flat. Unchanged

2

<Short-term prospects>

May

June

An extremely severe situation is expected to remain due to the influence of theinfectious disease for the time being, although the socio-economic activities will beresumed gradually with taking measures to prevent the spread of infectious diseases.Also, attention should be given to the effects of fluctuations in the financial and capitalmarkets.

The economy is expected to move toward picking up from an extremely severesituation, supported by the effects of the policies while the socio-economic activitieswill be resumed gradually with taking measures to prevent the spread of infectiousdiseases. However, attention should be given to the trend of domestic and overseasinfections, and the effects of fluctuations in the financial and capital markets.

April

An extremely severe situation is expected to remain due to the influence of theinfectious disease. Moreover, full attention should be given to the further downsiderisks to the domestic and foreign economy which are affected by the influence of theinfectious disease. Also, attention should be given to the effects of fluctuations in thefinancial and capital markets.

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.

The Government will increase socio-economic activities step-by-step, while continuing to implement measures to prevent the spread ofthe Novel Coronavirus. Under such situation, the Government will implement the “Emergency Economic Measures to cope with the NovelCoronavirus” (Cabinet Decision on April 20th) including the FY2020 supplementary budget, and the FY2020 second supplementarybudget as soon as possible in order to thoroughly secure employments, businesses and daily lives and achieve strong economic recoveryand social structural changes.

The Government will decide the “Basic Policies for Economic and Fiscal Management and Reform 2020 (provisional)” etc. by themiddle of July in order to lay out the basic direction of the blueprint of an economy and society that Japan should aim for, in response tothe changes caused by the Novel Coronavirus to the mindset of the people and the situation of the world.

The Bank of Japan enhances monetary easing with a view to doing its utmost to support financing mailnly of firms and maintainingstability in financial market. The Government expects the Bank of Japan to achieve the price stability target of two percent in light ofeconomic activity, prices and financial conditions.

<Policy stance>(Monthly Economic Report, June 19, 2020)

4

DI by sector (current conditions)

Both current and future DI (diffusion index) of “Economy Watchers Survey” rose significantly in May. Inparticular, future DI is the largest rise on record due to the lifting of the state of emergency declaration.

The current DI rose in all sectors, particularly in the retail, food and beverage, and services. However, thepace of improvement in the employment-related DI is slow. Comments on the decline in job openings,termination of temporary contracts, and weakness in hiring of new graduates are noticed.

－ Business Sentiment －

Note: The figures in parentheses show the difference from the previous month. The figures on the left and upper right are seasonally adjusted.

Source: Cabinet Office

Employment-related commentsKey comments

×(Bad)

The number of active job openings is declining. By sector, lodging, food andbeverage, services, and manufacturing declined significantly.(Tokai, Employment Security Office)

×(Bad)

Some companies will end their contracts at the end of June, while others will renew their contracts through the first half of the year, but the second half of the year is not yet determined. (Kyushu, Temporary staffing company)

×(Bad)

Food and beverage, lodgings, and trading companies, especially those producing women's clothing and shoes, have stopped hiring new graduates due to the downturn.(Tohoku, Temporary staffing company)

□(Unchanged)

The effects of infectious diseases have appeared in various industries, and the employment environment continues to deteriorate, with many consultations on applications for employment adjustment subsidies.(Chugoku, Employment Security Office)

DI for judgement of current conditions

DI for judgement of future conditions

0

10

20

30

40

50

60

2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 25

2008 09 10 11 12 13 14 15 16 17 18 19 20

(DI)

April 2020： 7.9(▲6.3)【Record low】

May 2020： 15.5(+7.6)

December 2008：19.0(▲4.5)

0

10

20

30

40

50

60

2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 25

2008 09 10 11 12 13 14 15 16 17 18 19 20

(DI)

April 2020： 16.6(▲2.2)【Record low】

May 2020： 36.5(＋19.9)【Largest rise on record】

December 2008：21.3(▲7.0)

MonthYear

MonthYear

Economy Watchers Survey(Survey period: May 25 to 31)

16.4 19.411.9 8.6

17.2 15.0 16.6 13.910.7

-100

102030405060

Household activity

-related

(Retail)

(Services)

(Food and beverage)

(Housing)

Corporate activity

-related

(Manufacturing

firmoperator,em

ployee)

(Non-

manufacturing firm

operator,employee)

Employm

ent-related

Mar. 2020→ Apr.→ May.

5

－ Private Consumption －

Sales of major department stores (YoY)

Sources: NOWCAST, INC. ; JCB Co., Ltd ; Cabinet Office. ; Japan Foodservice Association ; JR Central ; Ministry of Economy, Trade and Industry; Published documents from firms

Trends in goods and services spending

Sales of eating out

CY2020 April May 1st half of June

Company A -74.6％ -62.8％ -21.4％

Company B -78.2％ -74.3％ -19.7％

Company C -80.5％ -69.5％ ―

Company D -91.3％ -91.9％ ―

Company E -76.9％ -71.6％ -31％

Private consumption is showing movements of picking up recently as the state of emergency was lifted.Credit card spending declined from a year ago but the rate of decrease narrowed in the second half ofMay.

Although consumer sentiment is still at a low level, it has stopped deteriorating. Sales of eating out andthe number of Shinkansen passengers have bottomed out. Sales of home appliances bounced back, whilesales of major department stores are gradually picking up.

-39.6

-28.9

-50

-40

-30

-20

-10

0

10

1 2 3 4 5

y/y, %

Month2020

-15.6

6.0

-32.9

-50-40-30-20-10

01020

前 後 前 後 前 後 前 後 前 後

1 2 3 4 5

y/y, %

Half

Month2020

Services

Goods

Total

2nd1st 1st 2nd 2nd 2nd 2nd1st 1st 1st

Sales of 5 home appliances

71.0

-40

-20

0

20

40

60

80

1 3 5 2 4 2 4 2 4 1 3 1 3

1 2 3 4 5 6

y/y, %

2020Week

Month

(6/8～14)

The number of Shinkansen passengers

-90

（～17th June）-77

-100

-80

-60

-40

-20

0

20

1 2 3 4 5 6

y/y, %

Month2020

21.6

24.0

16

20

24

28

32

36

40

44

1 2 3 4 5 Month2020

Consumer confidence index

6

-0.6

-2.4

1.1

-1.6

2.1

-11.4 -7.4

1.4 0.8

-30

-20

-10

0

10

20

Total

Construction

Information and

comm

unication

Transportation / Postal

Wholesale / R

etail

Accom

modation /

Food and drink services

Life-related service /

Entertainment

Education and learning support

Medical care, w

elfare

y/ y contribution, %

Total cash earnings

Total working hours

Total cash earnings/Total working hours

The number of employees who laid off work increased by 4.52 million in April to 6.52 million.Companies are preserving their workers. Under these circumstances, total cash earnings dropped by 0.6%,as average working hours decreased.

The number of employed person decreased by 1.1 million while the number of people not in the laborforce increased by 0.9 million. One-third of those is elderly and the rest is female. It is important to letthem return to the labor force as the socio-economic activities will be resumed gradually.

Employment adjustment subsidy payment status

Total cash earnings (April 2020)Employment status in April 2020 (seasonally adjusted)

Non-labor force:42.74 million（+940,000）

Employed person

66.25 million

(-1.07 million)

Employees who laid off work6.52 million

（+4.52 million）

Unemployed 1.78 million（+60,000）

※() shows the difference from the previous month

Labor force:68.03 million (-990,000)

Population over 15 years old: 110.77 million (-50,000)

Exit the labor market＜Decrease in the number

of workers＞Female (64 and under)

-620,000Elderly people

(65 years old and over)-330,000

Unemployment rate2.6％

（+0.1% points）

－ Employment Situation －

Source: Ministry of Health, Labor and Welfare; Ministry of Internal Affairs and Communications

25.5 16.1

63.1

01020304050607080

0

10

20

30

40

50

1 8 15 22 29 5 12 19 24

5 6

(%)

2020CY

MonthCY

ten thousand applications/decisions

Cumulative number of payment decisionsCumulative number of

applications

Payment decision rate(right scale)

7

Goods exports mainly to the U.S., and the EU, are rapidly decreasing, due to the decrease in overseasdemand. Automobile-related goods exports dropped significantly.

On the other hand, ICT-related goods exports are steadily increasing thanks to a strong demands for 5Gand data centers. The demand for semiconductor producing equipment is also steady.

Business confidence in China has been improving for three months, and those in the U.S. and the EU alsoimproved in May. However, the prospects are highly uncertain all over the world, due to risks includingthe second or third wave of the spread of the infectious disease. Attention should be given to overseaseconomies, which define the future exports from Japan.

25

35

45

55

65

1 3 5 7 9 11 1 3 52019 20

Manufacturing50.6

MonthYear

DINon-manufacturing

53.6

－ Export －

70

75

80

85

90

95

100

105

110

115

120

125

1 4 7 10 1 4 7 10 1 4 7 10 1 52017 18 19 20

EU

AsiaU.S.

World

s.a., CY2015=100, 3MA

Month

Export volume index by region

May World Asia U.S. EUMonth to Month -9.9 -4.6 -18.1 -11.1[Export-share] [53.7%] [19.8%] [9.7%]

90

110

130

150

170

1 4 7 10 1 4 7 10 1 4 7 10 1 5

2017 18 19 20

s.a., CY2015=100, 3MAsemiconductor producing equipment

IC

MonthYear

ICT-related goods

Business confidence in overseas economyChina The EUThe U.S.

40

45

50

55

60

1 3 5 7 9 11 1 3 52019 20

43.1

45.4

MonthYear

DI

46.9

47.310

20

30

40

50

60

70

1 3 5 7 9 11 1 3 562019 20

MonthYear

DI

Automobile-related goods

5565758595

105115125

1 4 7 10 1 4 7 10 1 4 7 10 1 5

2017 18 19 20

s.a., CY2015=100, 3MA

MonthYear

Automobile

Automobile parts

Sources: Ministry of Finance, National Bureau of Statistics of China, Institute for Supply Management, and IHS Markit 8

849096102108114120126132

8286909498

102106110

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

2017 18 19 20

Production machinery(Right scale)

Transport equipment(Right scale)Electronic parts and device(Right scale)

IIP(total)

s.a., CY2015=100, 3MAForecast

-9

-50-63

-47

-70-60-50-40-30-20-10

0

３月 ４月 ５月 ６月

y/y, %

(actual) (estimation)

Automobile production

Sales and export structure of Japanese automobile companies(2019 actuals)

Japan

Domesticproduction8.33million

For export4.31million

export/production

51.7％

AutomobileExport ratio

LowLocal

production ratioHigh

Major countries’ sales of automobile

Exports

-120

-80

-40

0

40

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

2019 20

U.K. May -89.0％Germany May -49.5％

China May 7.0％

U.S. May -29.5％

MonthYear

1.71

0.22

0.25 China 4.58 （5.5％）

中国 4.52 （4.9％）

Europe 2.47 （37.3％）

6.97 （27.2％）

SalesExport ratio(＝export/sales)

Other Asiancountries

－Automobile Production － Industrial production is decreasing due in part to significant decrease in exports. Transport equipment

including automobile is weak. However, automobile sales in major countries are picking up in May. The local production ratio by Japanese automobile companies is high in Asia, and low in Europe and the

US. Therefore, exports of automobile parts to Asia and exports of vehicles to Europe and the U.S. will startto pick up. Domestic automobile production is expected to bottom out in May and pick up in June.

March April May June

y/y, %

MonthYear

Production by Industry

Sources: Ministry of Economy, Trade and Industry, Japan Automobile Manufactures Association, Ministry of Finance, JNTO,CAAM,KBA,SMMT, United States Department of Commerce, MarkLines

NorthAmerica

AutomobileExport ratio

HighLocal

production ratioLow

0.93

9

Since sales have declined in domestic and overseas economies due to the influence of the infectiousdisease, corporate profits have decreased rapidly.

Investment in the first quarter of 2020 has increased. A part of planned investment in the previousquarter would be postponed as the Typhoon Hagibis took away an investment opportunity. Theinvestment plan of large corporation, especially software investment in FY2020 are solid, however, theaggregate figure suggest that companies are cautious.

－ Trends in Business Activities－

Business investmentOrdinary profit

16.1

5.0

11.1

0

5

10

15

20

25

ⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠ

201213 14 15 16 17 18 19 20

Non-manufacturing

quarterCY

s.a., tril. yen

Manufacturing

All industries

Jan.- Mar. 2020Q/Q ▲11.6％Y/Y ▲32.9％

Jan.- Mar. 2020Q/Q ▲11.5％Y/Y ▲29.5％

Jan.- Mar. 2020Q/Q ▲11.6％Y/Y ▲32.0％

Business investment FY2020(outlook)(Business Outlook Survey)

FY/FY,％ Investment（incl. software）

SoftwareInvestment

Total

All industries -4.4 3.8

Manufacturing -1.9 7.3

Non-manufacturing -5.8 2.9

Largecorporation

All industries 5.9 8.2

Manufacturing 9.3 12.8

Non-manufacturing 3.5 7.0Source: Ministry of Finance

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

90

100

110

120

130

140

150

Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ Ⅱ Ⅳ

2012 13 14 15 16 17 18 19 20

Non-manufacturing

Q/Q＋8.2％

SoftwareQ/Q

＋2.0％

%, compared with fourth quarter of 2012,sa

quarterCY

ManufacturingQ/Q

+5.3％

All industires（Q/Q＋6.7％）

10

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 5

2012 13 14 15 16 17 18 19 20

s.a., tril.yen, 3MA

Month

CY

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 10 1 4

2013 14 15 16 17 18 19 20

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

Month

CY

Owner-occupied housing(right scale)

Housing for rent(right scale)

Housing for sale(right scale)

Total

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

Housing investment is in a weak tone.Housing construction starts

33.7

25.1

11.3

9.4 0

10

20

30

40

1 4 7 10 1 4 7 10 1 52018 19 20

Month

CY

ten thousand groups

Number of the housing exhibition visitors (couples)

Source: Ministry of Land, Infrastructure, Transport and Tourism. Housing Exhibiter Conference, The Machinami Foundation. Ministry of Economy, Trade and Industry,

East Japan Construction Surety Co.,Ltd.,etc.

Public investment holds firm.

Contracted value of public construction

Amount of public construction completed

1.0

1.2

1.4

1.6

1.8

2.0

4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4

2012 13 14 15 16 17 18 19 20

s.a., tril.yen, 3MA

Month

CY

11

CPI (Consumer Price Index)

Producer prices are declining. Consumer prices are flat.

Crude oil prices/ gasoline prices

98.5

99.0

99.5

100.0

100.5

101.0

101.5

102.0

1 4 7 10 1 4 7 10 1 4 7 10 1 52017 18 19 20

s.a., CY2015=100

Core CPI (less fresh food)

Core-core CPI(less fresh food and energy)

CPI

MonthYear

75

80

85

90

95

100

105

110

93

95

97

99

101

103

105

1 4 7 10 1 4 7 10 1 4 7 10 1 5

2017 18 19 20

CY2015=100

Producer Price Index

Import Price Index(right scale, yen basis)

CY2015=100

MonthYear

Producer Price Index/ Import Price Index

40.0

130.2120

130

140

150

160

170

15

25

35

45

55

65

75

85

1 4 7 10 1 4 7 10 1 4 6

2018 19 20

yen/ℓ

MonthYear

dollar/barrel

Gasoline(right scale)

Crude oil

Price trends of individual items in CPI

-5.8

0.6

2.5

0

1

2

3

4

-10

-5

0

5

10 11 12 1 2 3 4 5

2019 20

Accommodation fee

Domestic Beef(right scale)

MonthYear

y/y, %

Cut rose flower

y/y, %

Source: Bank of Japan; Ministry of Internal Affairs and Communications; Agency for Natural Resources and Energy; Nikkei Economic Electronic Databank System; Cabinet Office

Note: Producer price index excludes the direct effects of the consumption tax increase. CPIs exclude the direct effects of the consumption tax increase and free early childhood education and nurseries.

12