Business Condition Worsened

The Cabinet Office released on July 7th the Indexes of Business Conditions of May 2025. The coincident index (CI), which indicates actual condition of economy, marked 0.1 point of decline from the previous month. The evaluation of business condition was “worsening,” for the first time since July 2020 when COVID-19 damaged whole economy. The government of Japan did not determine whether the drop was caused by tariff policy of Trump administration of the United States. 

Economic and Social Research Institute of the Cabinet Office releases monthly index of business condition in Japan to grab the situation of Japanese economy by analyzing economic indexes such as production of goods or employment. The basic assessment is made through the CI which describes contemporary situation of current business activities.

 

Definition of “worsening” is decline for three consecutive months in average of the DI in latest three months. In the case of May 2025, the DI showed 0.1 point of decline from April. The average of DI in latest three months (March, April and May) was negative, as in April and March. “Worsening” means that the economy is possibly in recession.

 

Five indexes among ten marked the decline from the previous month. Decline in jobs-to-applicants ratio and amount of exports caused total minus of CI. Shipping in industrial productions and sales in commerce (both retailers and wholesalers) also reduced. The assessment has been “halting to fall” between May 2024 and April 2025, which meant no significant change in economy.

 

Some officers in the Cabinet Office explained that an accident in a factory of car parts affected the index in March, April and May. However, they refused to assess the negative impact of tariff policy of Trump administration. President Trump imposed 25 percent of tariff on imported cars from April and on car parts from May. The sales of Japanese cars to the U.S. in May declined by 24.7 percent from the same month in 2024. Although Trump’s tariff policy has already damaging car businesses, the government of Japan seems to be ignoring the impact.

 

Price inflation also afflicts consumers. The Monthly Labor Survey by Ministry of Health, Labour and Welfare showed 2.9 percent of decline in real wage of workers in May, compared to the same month in 2024. It was five consecutive months that showed the decline. Although cash earnings marked 1.0 percent of increase, the growth continued for 41 consecutive months, price inflation offset the wage hike which the government has been caring about.

 

As the political parties are focusing on economic policies in the Upper House election campaign, negative trend in Japanese economy may have negative impact on the campaign of the leading coalitions by the Liberal Democratic Party and Komeito.

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