Recent Economic Developments- Monthly Economic Report, May 28 2020 -

June 5, 2020

Cabinet OfficeGovernment of Japan

(Changed)

(Changed)

May

<Assessment of the current state of the Japanese economy>

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

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

March The Japanese economy is in a severe situation, extremelydepressed by the Novel Coronavirus.

May

April

1

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

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

Private consumptionPrivate consumption is showing

weakness recently, due to theinfluence of the infectious disease.

Private consumption is decreasingrapidly, due to the influence of the

infectious disease. (↓)Unchanged

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

Exports Exports are in a weak tone.Exports are decreasing recently, due

to the influence of the infectiousdisease. (↓)

Exports are decreasing rapidly, dueto the influence of the infectious

disease. (↓)

Industrial production Industrial production remains in aweak tone.

Industrial production is decreasing,due to the influence of the infectious

disease. (↓)Unchanged

Corporate profits Corporate profits are in a weak tonemainly among manufacturers.

Corporate profits are decreasingrapidly, due to the influence of the

infectious disease. (↓)Unchanged

Firms’ judgments onbusiness conditions

Firms’ judgments on currentbusiness conditions are

deteriorating, due to the influence ofthe infectious disease.

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

infectious disease. (↓)

Unchanged

Employmentsituation

Employment situation is affected bythe infectious disease although it

has been improving.

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.

(↓)

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

2

<Short-term prospects>

April

May

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.

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.

March A severe situation is expected to remain due to the influence of the infectious disease.Moreover, full attention should be given to the further downside risks to the domesticand foreign economy which are affected by the influence of the infectious disease.Also, attention should be given to the effects of fluctuations in the financial and capitalmarkets.

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”, the ‟Action Plan of the Growth Strategy”and so on. Moreover, in order to create a society in which everyone plays an active role and feels secure, the Government will establish the socialsecurity system for all generations. The Government extended the duration for which the state of emergency in accordance with the amended Act on Special Measures forPandemic Influenza and New Infectious Diseases Preparedness and Response were being implemented until May 31st, on May 4th. TheGovernment had decided to lift the state of emergency in all prefectures by May 25th. The Government will increase socio-economicactivities step-by-step, while continuing to implement measures to prevent the spread of infections. Under such situation, the Governmentwill implement the ‟Emergency Economic Measures to cope with the Novel Coronavirus” (Cabinet Decision on April 20th) including theFY2020 supplementary budget as soon as possible in order to make effort towards preventing the spread of infections, thoroughly secureemployments, businesses and daily lives, and achieve strong economic recovery and social structural changes after the end of contagion.The Government will submit the FY2020 second supplementary budget (Cabinet Decision on May 27th) to the Diet swiftly and work forearly passage of it. The Bank of Japan decided enhancement of monetary easing further on April 27th and introduction of a new fund-provisioning measureon May 22nd with a view to doing its utmost to support financing mailnly of firms and maintaining stability in financial market. TheGovernment expects the Bank of Japan to achieve the price stability target of two percent in light of economic activity, prices and financialconditions.

<Policy stance>(Monthly Economic Report, May 28, 2020)

4

91.4

889092949698

100102

Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ

2019 20

Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ

2008 09

（2008Ⅰ/2019Ⅲ＝100）

This Time

GlobalFinancial

Crisis

Forecast by private agencies

・High 8 average：93.8 (▲13.4％)

・All average：91.6 (▲21.3％)

・Low 8 average：88.9 (▲30.1％).

%2020

Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ

Jan. - Mar. Apr. - Jun. Jul. - Sep. Oct. - Dec. Jan. - Mar.0.6 0.5 0.0 -1.9 -0.9

[2.6] [2.1] [0.0] [-7.3] [-3.4]

(1.5) (0.4) (0.1) (0.8) (0.3) (-2.4) (-0.7)

(1.4) (0.2) (0.1) (0.4) (0.1) (-2.5) (-0.7)

Private Consumption 1.1 0.1 0.1 0.5 0.4 -2.9 -0.7Private Non-ResidentialInvestment 4.3 1.7 -0.5 0.9 0.2 -4.8 -0.5

Private ResidentialInvestment -1.4 -4.9 1.5 -0.3 1.2 -2.5 -4.5

Changes in PrivateInventories(Contributions)

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

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

Public Investment 0.5 0.6 2.3 1.7 1.0 0.5 -0.4

(0.5) (-0.1) (0.5) (-0.3) (-0.2) (0.5) (-0.2)

6.4 1.7 -1.8 0.2 -0.6 0.4 -6.03.9 2.5 -4.5 1.8 0.7 -2.4 -4.9

1.1 0.6 0.4 -1.5 -0.8

[4.6] [2.5] [1.6] [-6.0] [-3.1]

<0.1> <-0.2> <0.2> <0.4> <0.6> <1.2> <0.9>

Domestic Demand(Contributions)

2019

Real GDP growth rate1.9 0.3

[at annual rate]

FY2017 FY2018

GDP Deflator<Year on Year>

ExportsImports

Nominal GDPgrowth rate

Private Demand(Contributions)

Public Demand(Contributions)

Net Exports(Contributions)

2.0 0.1[at annual rate]

The real GDP (Gross Domestic Product) for the Jan.-Mar. 2020 period (First preliminary) decreased by0.9%(or at an annualized -3.4%) from the previous quarter.

Domestic demand is weak. Private consumption decreased due to the voluntary restraint from the end ofFebruary, and exports decreased mainly due to the loss of the inbound demand.

The Japanese economy is worsening rapidly in April and May after the declaration of a state ofemergency, and the GDP for the next quarter is expected to be even more severe.

Contribution of real GDP growth rateChanges and contributions to changes in real GDP(seasonally adjusted)

Note: Quarterly data is quarter-to-quarter change. The figures on the lower right in parentheses indicate the annual rate of change from the previous quarter.

Source: Cabinet Office.

s.a.,Q on Q, contribution, %

QuarterYear

QuarterYear

－ GDP: Jan. – Mar. 2020 (First Preliminary) －

2.6

2.1 0.0

-7.3 -3.4-12.0

-9.0

-6.0

-3.0

0.0

3.0

6.0

9.0

Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ

2019 2020

Exports

Public demand Private consumption

Private Non-Residential Investment

Imports

Real growth rate

QuarterYear

Comparison of Real GDP with the Global Financial Crisis

5

-9.4

-31.3

-41.3-50

-40

-30

-20

-10

0

３月 ４月 ５月

y/y

2020 Mar. Apr. May.

－ Export & Industrial Production －

Export to China

Goods export is rapidly decreasing. However, export to China increased in April thanks to the strength ofICT-related goods demand. On the other hand, Automobile-related goods export dropped significantly.

Industrial production is decreasing due to weak internal and external demand. The number of motorvehicle production is decreasing substantially. On the other hand, the production of electric parts anddevices are picking up due to strong demand.

Export to Asia

859095

100105110115120125

1 4 7 10 1 4 7 10 1 4 7 10 1 42017 18 19 20

EU

AsiaU.S.

World

s.a., CY2015=100, 3MA

MonthYear

Export volume index by regionApril World Asia U.S. EU

Month to Month -5.7% -1.6% -10.1% -6.9%[Export-share] [53.7%] [19.8%] [9.7%]

80

85

90

95

100

105

110

90

95

100

105

110

115

120

1 4 7 10 1 42019 20

China

NIES(Right scale)

ASEAN

s.a., CY2015=100, 3MA s.a., CY2015=100, 3MA

MonthYear

100

110

120

130

140

100

120

140

160

180

200

220

1 4 7 10 1 4

2019 20

Automobile-related goods (Right scale)

IC

s.a., CY2015=100, 3MA s.a., CY2015=100, 3MA

MonthYear

849096102108114120126

84

88

92

96

100

104

108

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

2017 18 19 20

s.a., CY2015=100, 3MA s.a., CY2015=100, 3MA

IIP(total)

Production machinery(Right scale)

Electronic parts and devices(Right scale)

IIP(total, month)

MonthYear

Production by Industry

40

60

80

100

120

1 2 3 4 5 62020

8 9 101112 1 2 3 4 52008 09

CY2015=100

Lehman shock

2020

2020

Forecast

MonthYear

MonthYear

Motor Vehicles Electric parts and devices

actual estimation

Sources: Ministry of Finance, Ministry of Economy, Trade and Industry

Transport equipment(Right scale)

6

1.2

2.1

2.7

7.9

2.6

0 5 10

Retail /Dining out

Finance

service

IT /communication

Total

43.2 25.1

-12.3

-30.1

-12.9

-50 0 50

Instructor /Private Tutor

Transport / driver /delivery

Food & Drink

Factory /Manufacturing

Total

Comparison with the 3rd week of January, % The agreed wage increase rate

Growth of the part-time job offers (April second week)

Employment adjustment subsidy payment status

○ A general retail company A temporarily transfer workers in the apparel sectionto the food section to resolve mismatches.

○A taverns company B signed a seconded contract with food retail company C toaccommodate laid-off employees.

○ The labor union D bridges the personnel demand information among theaffiliated company based unions to resolve mismatches among them.

○ It has become difficult for foreign technical interns scheduled to come to Japanin April, so that workers in the local tourism industry are temporally engagedin the agricultural sector.

Example of intra-company labor movement / inter-company business alliance

MayCumulative number of

applications

Cumulative number of payment decisions

Payment decision

rate(%)

1 5,119 522 10.28 10,534 3,087 29.315 21,592 9,258 42.922 39,185 19,435 49.627 57,750 29,414 50.9

Job openings-to-applicants ratio by sector (the private agency

market (April))

The number of active job openings

－ Employment Situation － The total number of active job openings is falling but some types of jobs are increasing. Therefore,

resolving the employment mismatch is important. Some companies and labor unions try to resolvemismatches through labor-transfer through intra- or inter-firm cooperation.

The employment adjustment subsidy is effective to protect employment. About 2% wage growth will be achieved through the annual wage negotiation in spring, which should

support the future income environment

2.071.93

2.43

2.17

1.0

2.0

3.0

2019 2020

Japan Trade Union FederationJapan Business Federation

y/y, %

CY

-11.9-16.3

-21.2-26.3

-35-30-25-20-15-10

-50

2 3 4 5

2020

（y/y, %）

Month

CY

Source: Ministry of Health, Labor and Welfare; DIP Corporation ; PERSOL CAREER CO., LTD ; Japan Trade Union Federation ; Japan Business Federation

Transportation industry,

dispatch of technical personnel

7

Both current and future condition DI (diffusion index) of “Economy Watchers Survey” dropped belowthe lowest recorded at the global financial crisis, suggesting that business is in an extremely severesituation, particularly in non-manufacturing sectors such as food and beverage, and services.

Indices of Tertiary Industry Activity also fell sharply in March due to the voluntary restraint. By industry,the decline was particularly large in the lodging, food and beverage, and transportation industries.

－ Business sentiment and Production of Non-Manufacturing Industries－

0

10

20

30

40

50

60

70

2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 2 8 4 .

2007 08 09 10 11 12 13 14 15 16 17 18 19 20

(DI)

＜Global Financial Crisis＞December 2008Current：19.0(▲4.5) Future ：21.3(▲7.0)

April 2020Current： 7.9(▲6.3)Future：16.6(▲2.2)

DI for judgement of current conditions

DI for judgement of future conditions

DI by sector (current conditions)

7.5 10.53.5

-3.1

9.4 9.912.1

8.3 6.3

-100

102030405060

Household activity

-related

(Retail)

(Services)

(Food and beverage)

(Housing)

Corporate activity

-related

(Manufacturing firm

operator,employee)

(Non-m

anufacturing firmoperator,em

ployee)

Employm

ent-related

Feb. 2020→ Mar.→ Apr.

Economy Watchers Survey (April)

(DI)

Indices of Tertiary Industry Activity by Industry（March,2020）

Indices of Tertiary Industry Activity

101.2

96.996

98

100

102

104

106

108

1 4 7 10 1 4 7 10 1 4 7 10 3

2017 18 19 20

(2015=100)

MonthYear

Source: Cabinet Office; Ministry of Economy, Trade and Indusry.

-4.2 -5.2-17.1

-24.4

-46.3-60

-40

-20

0

20

Total

Retail

Transportation

Food and beverage

Lodging

Jan.2020 Feb. Mar.

（m/m, ％）

8

Corporate profits are decreasing rapidly, due to the influence of the infectious disease in Q1 2020.Both manufacturing and non-manufacturing firms are in a difficult situation due to the decrease indomestic and overseas sales.

Financial position of SMEs is rapidly deteriorating, while strong public support is beingimplemented. The number of bankruptcies in April was suppressed as a whole, but the number ofinfection related bankruptcies increased.

Financial position of SMEs

The number of bankruptcies The infection related

bankruptcies (cumulative)

743

550600650700750800850

1 3 5 7 9 11 1 3 4

2019 20

cases

monthCY

Ordinary profit of listed companiesQ1 2020：YoY -60.3%

Manufacturing Non-manufacturing

02468

101214

Ⅰ Ⅱ ⅢⅣ Ⅰ Ⅱ ⅢⅣ Ⅰ Ⅱ ⅢⅣ Ⅰ Ⅱ ⅢⅣ Ⅰ Ⅱ ⅢⅣ Ⅰ Ⅱ ⅢⅣ Ⅰ

2014 15 16 17 18 19 20

tril. yen

quarterCY

-58.1 -80-60-40-20

02040

Ⅱ Ⅲ Ⅳ Ⅰ

2019 20

YoY

quarterCY

-62.8 -80-60-40-20

02040

Ⅱ Ⅲ Ⅳ Ⅰ

2019 20

YoY

quarterCY

(～27)

-38

-50

-40

-30

-20

-10

0

2014 15 16 17 18 19 20

DI, upturn – worsened

CY

Apr.

Financial support from public financial institutions (cumulative)

May 7th May 27th

Public financial institutions

4.2tril. yen

6.7tril. yen

Private financial institutions

(interest free loan)

47bln. yen

2.3tril. yen

－ Trends in Business Activities－

Source: Tokyo Shoko Research.Source: NIKKEI NEEDS

Source: Tokyo Shoko Research.

1079

1272

25

109

186

0

50

100

150

200

250

Feb. Mar. Apr. May

Preparing forbankruptcybankruptcy

cases

9

Sources: LINE Research .; NOWCAST, INC.; JCB Co., Ltd

Telecommuting and teleworking are expanding widely, in order to achieve the prevention of the spreadof infection, and continuation of business activities simultaneously.

Due to refraining from going out, spending on goods and services is in a severe situation as a whole.Spending at home, such as purchase through e-commerce and digital content distribution, increases.

It is important to resume economic activity by creating a new life-style through the further spread oftelecommuting and teleworking, and e-commerce under taking infection prevention measures in variousindustries.

－ Changes in Working-style and Consumption Behavior－

Trends in goods and services spendingStatus of working from home / telework(Ratio of respondents who are implementing)

-5.5

29.2

-46.3

36.1

-50

-40

-30

-20

-10

0

10

20

30

40

50

前 後 前 後 前 後 前 後 前 後

12 1 2 3 4

(%, YoY)

2019～2020

E-commerce

Goods

Services

Digital content distribution

2nd1st 2nd 2nd1st1st 2nd1st 2nd1st Half

Month

5

10

18

32

40

46

49

58

73

35

0 20 40 60 80

Medical

Food and beverage

Transportation /Warehousing

Manufacturing(automobile related)

Real estate business

Wholesale /Trading company

Education / School

Finance / Insurance

IT / communication /Internet related

Total

March 2020 survey(as of March 2)April 2020 survey (as of April 16)

Ratio of respondents who are implementing, %

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 4

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 3

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

0

10

20

30

40

1 4 7 10 1 4 7 10 1 42018 19 20

Month

CY

ten thousand groups

Number of the housing exhibition visitors (couples)

Business investment is in a weak tone recently.

90

95

100

105

110

115

1 4 7 10 1 4 7 10 1 3

2018 19 20

s.a,CY2015＝100

Three month average

Month

Month

CY

Capital goods supply

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

11

0.0

4.3

-2.3 -0.6

-1.6

-0.3

-3.5

1.3

-1.3

1.9 0.4

-15

-10

-5

0

5

10

15To

tal

Construction

Manufacturing

Information and

communication

Transportation / Postal

Wholesale / Retail

Accommodation /

Food and drink services

Life-related service /

Entertainment

Education and

learning support

Medical care, welfare

Other service industry

y/ y contribution, %

0.0

Ｔtotal cash earnings/Total working hours

Total working hours

Total cash earnings

-0.3 -4.1

0.8

8.5 3.6 2.6

-5.5 -3.8

0.7 0.7

-3.1

-15

-10

-5

0

5

10

15

Total

Construction

Manufacturing

Information and

comm

unication

Transportation / Postal

Wholesale / R

etail

Accom

modation /

Food and drink services

Life-related service / Entertainm

ent

Education and learning support

Medical care, w

elfare

Other service industry

y/ y contribution, %

Total cash earnings

Total cash earnings/Total working hours

Total working hours

Number of employees who laid off work

Total cash earnings (March 2020)

Full-time worker

Part-time workerExpected number of workers for dismissal

(Information through Labor Bureau etc.)

Employment situation: Weakness is increasing due to the influence of the infectious diseases.

Unemployment rate and active job opening-to-applicants ratio

835 2,654

11,058

02,0004,0006,0008,000

10,00012,00014,000

3 4 5

people

2020

Cumulative 14,829 people

(As of May 27)

（Until 27th）CY Month

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

1.32

2.6

2.02.22.42.62.83.03.23.43.63.8

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 10 4

2014 15 16 17 18 19 20

s.a., ratio （%）

Month

CY

Unemployment rate(right scale)

Active job opening-to-applicants ratio

200

652

100

200

300

400

500

600

700

7 8 9 10 11 12 1 2 3 4

2019 20

s.a., ten thousand people

Month

CY

12

CPI (Consumer Price Index)Producer Price Index/ Services Producer Price Index

Producer prices are declining.

97

98

99

100

101

102

103

104

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

2017 18 19 20

Producer Price Index

Services producer price index

CY2015=100

MonthCY

98

99

100

101

102

103

1 4 7 10 1 4 7 10 1 4 7 10 1 42017 18 19 20

s.a., CY2015=100

Core CPI (less fresh food)

Core-core CPI(less fresh food and energy)

CPI

MonthCY

Consumer prices are flat.

Note: CPIs are estimates by the Cabinet Office, which exclude the direct effects of the consumption tax increase and free early childhood education and nurseries. Drops in April 2020 include temporary impacts caused by one-off institutional factors such as the free higher education program and reduction of automobile insurance charges. Producer price index and services producer price index exclude consumption tax.

Source: Bank of Japan; Ministry of Internal Affairs and Communications; Cabinet Office

Including temporary impacts caused by one-off institutional

factors(about -0.2%)

13