○Production: Reflecting a reactionary decline after the last-minute increased demand preceding the consumption tax hike, centered on domestic demand, effects were seen in Tohoku, Tokai, Chugoku, and Kyushu in the automobile and automobile-related industries, while effects were seen in Shikoku in the industries related to the people’s daily lives such as pulp, paper and paper products industries. On the other hand, overseas demand in the automobile and automobile-related industries, which is insulated from the influence of the reactionary decline, remains steady. Moreover, production in the electronic devices industry remains steady for smartphones for export in Tohoku, Tokai, Chugoku, and Kyushu.

○Business investment: In manufacturing industries, business investment is centered on the maintenance and

renewal of equipment nationwide, but there was some movement in investment for production capacity enhancement and setting up plants utilizing the investment promotion tax system and subsidy, as well as investment for large-scale renewal of equipment and establishing logistic facilities in Kinki. In non-manufacturing industries, movements of opening new stores and remodeling existing stores have continued to be seen nationwide in the retail industry, while some retailers responded that they would reconsider their plans to open new stores due to soaring construction costs.

1. General Summary of Regional Economic and Industrial Research Results (from April to June 2014) (1/2) Reference 2

The effects of a reactionary decline after the last-minute increased demand preceding the consumption tax hike were seen nationwide. As for the assessments for each economic region, that in Kinki has been revised upward from the previous quarter, those in three regions, namely Kanto, Tokai, and Chugoku, remain the same as in the previous quarter, and those in the other six regions have been revised downward from the previous quarter.

○Employment situation: In manufacturing industries, a trend of employing non-regular employees due to a

labor shortage has continued to be seen at transport equipment-related industries in Kanto, Kinki, Chugoku, and Shikoku since the previous quarter. On the other hand, some respondents in the electronic devices industry in Kyushu have made efforts to downsize the number of employees, reflecting a decline in profits. In non-manufacturing industries, a labor shortage continues to be seen in the retail and services industries on a nationwide basis, and some respondents pointed out that the number of applicants is insufficient to accommodate the number of part-time job offers. The construction industry has seen a labor shortage on a nationwide basis, and there were some cases of delays in construction work and failing to participate in bidding.

○ Private consumption: Although effects of a reactionary decline after the last-minute increased demand preceding the consumption tax hike were seen in sales of luxury goods at department stores and daily necessities at supermarkets, sales of food are recovering. Some respondents expected a recovery around July with wage raises and increases in bonuses at large companies in Kanto, Tokai, and Kyushu. As for travel, the number of domestic and overseas tourists remains steady in Hokkaido and Okinawa, and sales by foreign tourists have increased at department stores in Tokai and Kinki since the previous quarter.

1. General Summary of Regional Economic and Industrial Research Results (from April to June 2014) (2/2)

- The average wage in this quarter increased due to a basic wage raise in addition to an annual pay increase. (Chugoku) - We have made job offers for production staff, but lack applicants because human resources flow into the construction and other industries. (Kyushu)

* Comments on employment

* Comments on private consumption - Basic wage raises and increases in summer bonuses at large companies lead to improvement in consumer confidence and a rosy outlook. (Kanto) - Sales of duty-free items to foreign tourists increased by 1.7-fold year-on-year in April and May. (Kinki)

Region General economic

conditions Description of sector-specific conditions (major comments)

Hokkaido

Showing some weak movements amid a continuous moderate recovery trend

（↓）

○ Production is in a weaker state. (↓) Production in the industries including the ceramics, stone and clay, and metal products industries remains brisk, reflecting vigorous demand for public works and private construction, as well as continuous steady overseas demand in the automobile-related industries including the transport machinery industry. However, the petroleum, paper and pulp, and other industries show sluggish movements mainly due to a reactionary decline after the last-minute increased demand preceding the consumption tax hike and repair of existing production equipment. Thus production activity as a whole is in a weaker state. As for prospects, some respondents have concerns about a labor shortage and effects of soaring material costs and other factors. ○ Business investment shows signs of picking up. (→) Although business investment is centered on the maintenance and renewal of equipment, investment in streamlining and enhancement of equipment in manufacturing industries has been seen. Moreover, in non-manufacturing industries, movements towards active openings of new supermarkets, convenience stores, and other stores and construction of distribution centers in the retail industry, as well as remodeling accommodations in the travel-related industries. ○ Employment is moderately improving. (→) The effective ratio of job offers to applicants has been on a recovery trend over the long term, though it is at a lower level compared with the national ratio. While there are increases in construction work and private consumption in accordance with economic recovery, mismatches are arising between the needs of recruiters and those of job seekers, bringing about labor shortages in terms of site supervisors and skilled workers including operators of heavy machinery in the construction industry, drivers of trucks, etc. in the transportation industry, and site staff offering personal services, etc. in hotels and other accommodations and the retail industry. ○ Private consumption is recovering gradually and continuing on a recovery trend although there was a last-minute demand reaction accompanying the consumption tax hike. (→) Sales of daily necessities, home appliances, luxury brands, etc. are recovering gradually although there was a last-minute demand reaction accompanying the consumption tax hike. There are some concerns about a delay of recovery due to effects of record long periods of rain in June, but consumer confidence has not declined, with the popularity of mini cars especially among women customers continuing in automobiles, as well as brisk sales of quality-oriented luxury goods including 4K televisions in home appliances. As for travel, the number of tourists to Hokkaido exceeds that of the same month in the previous year for the 27th consecutive month. Inbound travel from Taiwan and other countries continues to increase, and domestic tourists remain steady, centered on group tours.

Comments from companies - Although orders received are increasing in accordance with an increase in large construction work in urban areas, construction schedules are delayed due to the effect of labor shortages in the construction industry, causing problems such as a prolonged term for actual shipment of materials despite having contracts. (Large ceramics, stone and clay product manufacturer) - There was a reactionary decline in demand for food delicacies, our leading products, in April, but it shows fast recovery for articles of taste, resulting in picking up since May. (Small- and medium-sized food manufacturer) - Our business results are increasing, so we gave a basic wage raise, increases in bonuses and housing allowances to employees in accordance with the consumption tax hike, as well as raising hourly wages of non-regular employees and converting non-regular employees to regular-employees. (Small- and medium-sized general machinery manufacturer)

Region General economic

conditions Description of sector-specific conditions (major comments)

Tohoku

Showing a recovery trend, although the region is in a weaker state mainly due to a reactionary decline after the last-minute increased demand preceding the consumption tax hike

（↓）

○ Production is in a weaker state mainly due to a reactionary decline after the last-minute increased demand preceding the consumption tax hike, but there is some movement towards recovery. (↓) Since early autumn of last year, production has remained brisk, centered on the export-related industries and reflecting the depreciation of the yen and the recovery of the U.S. economy, but production in industries that enjoyed last-minute increased demand preceding the consumption tax hike, such as the transport machinery industry, is in a weaker state due to a reactionary decline. On the other hand, recovery from a reactionary decline can be seen in industries centered on the food industry, and production in electronic parts and devices is increasing, with steady demand for smartphones and tablet PCs for export. ○ Business investment is moderately picking up. (→) In the manufacturing industries, although business investment is focused on maintenance and renewal of equipment for many companies as investment for recovery from the Great East Japan Earthquake settles, there is investment for streamlining and labor-saving, in addition to investment for production capacity enhancement, reflecting the favorable business conditions. In non-manufacturing industries, although business investment is centered on maintenance and renewal of equipment, and continues to show proactive attitudes to opening new stores among retailers, there are some movements of postponing new plans to open stores partly due to rising construction costs. ○ The employment situation continues to improve. (→) The employment situation continues to improve with a rising ratio of job offers to applicants due to an increase in the number of job offers and a decrease in the number of job seekers caused by reconstruction demand. There is a sense of an insufficient number of salespersons in the retail industry and engineers for site management in the construction industry, etc. In coastal areas in disaster-affected prefectures, the effective ratio of job offers to applicants for engineers, as well as sales and service and production-related personnel is at a higher level than that in other areas, creating a strong sense of a labor shortage among job providers, while a noticeable mismatch of jobs, etc. such as less offers for clerical staff among job openings, is causing the severe situation to continue. ○ Private consumption is on a recovery trend after a reactionary decline after the last-minute increased demand preceding the consumption tax hike. (↓) Sales at large-scale retail stores significantly declined due to a reaction of last-minute demand accompanying the consumption tax hike, but are on a recovery trend centered on steady food and beverage sales. Sales of home appliances and the number of sales of new cars declined from the levels of the previous year. Although many companies expect recovery around August this year, there are some concerns about a delay in recovery.

Comments from companies - Industrial structure of manufacturing sector has changed drastically resulting in expansion of overseas production activities. Most small- and medium-sized manufacturers struggle to do businesses. (Small- and medium-sized manufacturer/Akita Prefecture) - Increases in costs, such as rising raw material costs, distribution costs, and personnel costs of workers have adverse effects on our profits. (Large manufacturer/Aomori Prefecture) - Sales decreased due to the increased demand preceding the consumption tax hike, but they are on a gradual recovery trend. (Large retailer/Miyagi Prefecture)

Region General economic

conditions Description of sector-specific conditions (major comments)

Kanto

Picking up

（→）

○ Production continues to show signs of picking up, but also shows some weak movement. (↓) Production in many industries, including the transport equipment and general machinery industries, shows steady movement, reflecting the continuous recovery trend in the domestic economy. Moreover, although there is a decline in orders received due to reaction to the consumption tax hike, its effects are expected to be temporary. On the other hand, some companies received fewer orders from their clients that have moved production bases overseas. ○ Business investment is moderately picking up. (↑) In manufacturing industries, although there are some manufacturers carefully reconsider making business investment with uncertainty about the economic recovery, there was active movement including construction of new office buildings and plants in Japan and overseas, investment to improve production technology and product quality, as well as maintenance and renewal of equipment. In non-manufacturing industries, there are retailers currently planning to develop new stores, while there are retailers that simultaneously plan to open new stores and close existing stores. ○ The employment situation is recovering. (↑) In manufacturing industries, there are movements of increasing the number of employees, reflecting an increase in production, etc., movements of making up shortages by utilizing part-timers, temporary staff, and other staff in production departments, as well as hiring regular employees to pass on skills and know-how. In non-manufacturing industries, there is a sense of an insufficient number of engineers at construction sites to conduct site management and salespersons at stores in the retail industry, etc. Each company faces difficulty in securing human resources amid fiercer competition regarding general employment, but proactive steps in acquiring human resources can be seen, reflecting improved business conditions. ○ Private consumption is picking up although a reaction to last-minute demand accompanying the consumption tax hike is seen. (→) Automobile sales show a slowing trend in comparison to past brisk sales due to the consumption tax hike. Moreover, although there are some hopeful signs for daily necessities and restaurant sales, consumption behavior shows no strength due to the persisting budget-minded attitudes of consumers. On the other hand, the reactionary decline seen centered on luxury goods at department stores has generally recovered with a few exceptions. Sales at convenience stores are brisk mainly due to the introduction of high value-added products and new products, with the elimination of the reactionary decline seen in some items. Home appliance retailers are also regaining brisk sales with a moderate elimination of the reactionary decline. Comments from companies

- The growth rate of smartphones and tablet PCs, which had led demand for electronic parts, appears to be slowing. (Large manufacturer/Gunma Prefecture) - We plan to set up new plants and enhance equipment for production of new products. (Small- and medium-sized manufacturer/Saitama Prefecture) - We lack architectural engineers due to increased demand in the construction market. We will hire more new university graduates. (Small- and medium-sized general constructor/Shizuoka Prefecture) - The number of customers seeking high-quality, economical goods, rather than absolute low prices has increased, resulting in a rise in per-customer spending. (Large retailer/Tokyo)

Region General economic

conditions Description of sector-specific conditions (major comments)

Chubu (Tokai)

Improving moderately

（→）

○ Production increases are seeing a pause. (↓) In the core automobile-related industries, overseas demand remains flat while the increasing trend in domestic demand shows a pause. Production in the electronic parts and devices industry remains at a high level mainly for smartphones. Such industries as the automobile-, production machinery-, and housing-related industries are experiencing a reactionary decline of last-minute demand accompanying the consumption tax hike. Some small- and medium-sized enterprises are facing a decline in profits due to soaring raw materials costs, and a rise in fuel costs and electricity rates. ○ Business investment increased moderately. (→) In manufacturing industries, investment in production capacity enhancement in North America and Asia is evident, while domestic investment centers on investment for streamlining, efficiency, maintenance and renewal. In non-manufacturing industries including the retail industry, there are movements towards remodeling stores and opening new stores, such as department stores and supermarkets. However, there are some retailers reconsidering plans to open new stores due to soaring construction costs. ○ The employment situation is steadily improving. (↑) In manufacturing industries, production can be completed with overtime work and the current number of non-regular workers, but some companies continue to face a situation in which the number of applicants is insufficient to meet the number of offers for non-regular workers. In addition, some small- and medium-sized enterprises have intended to hire excellent human resources for overseas development and technology development, but such human resources are hired by other companies. In non-manufacturing industries, the sense of an insufficient number of non-regular employees has increased in the retail industry, including supermarkets, and a situation persists in which the number of applicants is insufficient to meet the number of offers. ○ Private consumption shows the effects of last-minute demand accompanying the consumption tax hike, while moderately picking up. (→) Although sales at department stores and supermarkets show a reactionary decline after the last-minute increased demand preceding the consumption tax hike, some respondents pointed out that their sales are recovering partly due to the effects of sales promotion. In addition, sales to foreign tourists (from China and Southeast Asia, etc.) are increasing at department stores. At supermarkets, customers interested in high-quality, economical products continue to be seen, intensifying competition between businesses handling similar products. For automobile sales, a reactionary decline after the last-minute increased demand preceding the consumption tax hike has been observed, but the effects of reaction are decreasing partly due to the effect of the introduction of new car models.

Comments from companies - Although we expected a reactionary decline after the last-minute increased demand preceding the consumption tax hike after April, our profits have not declined as much as we assumed they would, due to the effects of introducing new car models and conservative initial estimates. (Large motor vehicle parts manufacturer/Aichi Prefecture) - Our sales are brisk, but we have not achieved our profit target, due to soaring raw material costs and fuel costs. As you can imagine, it was difficult for us to raise wages, including bonus increases and annual pay increases in this situation, but we did so with consideration for the current trend and to strengthen the motivation of our employees. (Small- and medium-sized cast and forged product manufacturer/Aichi Prefecture) - Sales of luxury goods (furniture, kimono, etc.) that benefitted from the last-minute increased demand preceding the consumption tax hike significantly decreased. Sales are recovering with a mitigation of sales decrease that we initially assumed, partly due to the effects of sales promotions, events, and remodeling. (Large department store/Aichi Prefecture)

Region General economic

conditions Description of sector-specific conditions (major comments)

Chubu (Hokuriku)

Showing signs of a pause

（↓）

○ Production remains flat. (↓) Production in the chemical industry continues to be brisk, centered on generic drugs. The general-purpose, production, and business oriented machinery industries remain at a high level with overseas demand and economic policy effects in Japan. Production in the textile industry remains flat, since demand for European fashion is brisk, while that for standard clothing has declined. Production in the electronic parts and devices industry shows signs of leveling off though there is a delay in launching new models for smartphones. Production in the metal products industry is in a weaker state partly due to a reactionary decline after last-minute demand before the consumption tax hike for aluminum building materials. ○ Business investment is increasing. (↑) In manufacturing industries, investment for enhancing equipment in response to R&D for new products and production is increasing, and investment for setting up new plants has been made by utilizing subsidies and tax incentives. Moreover, overseas investment is further increasing, including setting up and adding plants where there is demand. In non-manufacturing industries, investment has been made for energy-saving and improving convenience for consumers. In addition, there is movement in preparation for the opening of the Hokuriku Shinkansen. ○ The employment situation is moderately improving. (→) In manufacturing industries, companies whose production is increasing are handling labor shortages by increasing non-regular employees and shifting regular employees from other departments, but it is not sufficient to cover shortages, so they are also converting employees from non-regular employees to regular employees, as well as recruiting new regular employees. In non-manufacturing industries, although job offers for non-regular employees are continuous, there are few applicants, bringing about a labor shortage situation in which the number of applicants is still insufficient to meet the number of offers even when the positions offered were re-configured from non-regular to regular employee positions. As for wage raises this year, about 80% of the companies surveyed provided a pay increase, and about half of them raised both the basic wage and bonus. ○ Private consumption is in a weaker state. (↓) As for sales at department stores and of home appliances, the reactionary decline after last-minute demand before the consumption tax hike continues to be observed, sales at supermarkets are gradually recovering, centered on food. Sales of houses are recovering incrementally from a reactionary decline after last-minute demand due to the effects of mortgage loan deductions and housing acquisition benefits. Many companies expect that raising wages, including bonuses, will lead to consumption in the future. Comments from companies

- The purchasing power of consumers has not declined even after the consumption tax hike, and they tend to buy things which they want and which are reliable in terms of quality even at a relatively high price. (Large wholesaler and retailer/Ishikawa Prefecture) - With the expectation of enhancing the employees’ motivation by returning our profits to them, we increased bonuses in addition to providing annual pay and basic wage increases. (Large production machinery manufacturer/Toyama Prefecture) - We will make proactive investment (capacity enhancement) overseas, while making cost-saving investment (promotion of high efficiency) in Japan. (Large plastic product manufacturer/Toyama Prefecture)

Region General economic

conditions Description of sector-specific conditions (major comments)

Kinki

Showing signs of improvement（↑）

○ Production shows signs of picking up. (→) Although a reactionary decline after the last-minute increased demand preceding the consumption tax hike is seen in the home appliances and textiles industries, production in the automobile, solar cells, building materials, and construction machinery industries remains brisk. Production in the liquid crystal industry and the electronic parts industry including semiconductors is steadily reflecting the recovery trend. As for prospects, brisk sales will continue, centered on automobile-related industries, as well as being on a recovery trend in the home appliances and textiles industries. ○ Business investment is picking up. (↑) Business investment is picking up in all industries, and large-scale investment aiming at launching new business and capacity enhancement is planned. In small- and medium-sized manufacturers, maintenance and renewal of production equipment, and maintenance and repair of plants aimed at productivity improvement, energy saving and new energy efforts stand out. In non-manufacturing industries, willingness to invest in establishing logistics facilities, opening new stores, remodeling stores, etc. to improve logistic efficiency and secure sales is observed. As for overseas, many companies plan to invest in capacity enhancement with a focus on local production for local consumption and increasing local procurement. ○ The employment situation is moderately improving, increasing the sense of a labor shortage. (↑) The industries including automobile-related and non-manufacturing industries, in which the business conditions have been improving, face a labor shortage. There are movements of increased hiring of regular employees and part-timers, and continuing movements of balancing excesses and shortages between departments at some companies. A trend of hiring contract employees and part-timers as regular employees can also be seen. On the other hand, some respondents pointed out that the number of applicants is insufficient to meet the number of offers and it is difficult to hire new employees. Moreover, movements of hiring mid-career employees including fully-qualified personnel and industry-ready engineers and looking for human resources for overseas business development continue to be seen. ○ Private consumption is picking up although the effects of the consumption tax hike are present. (→) A reactionary decline after the last-minute increased demand preceding the consumption tax hike was seen across the retail industry covering luxury goods and daily necessities, while there were no significant effects on restaurants, travel, or leisure facilities. Sales at department stores and supermarkets recovered to the same level as the previous year, and automobile sales continue to remain steady for mini cars. As for sales of home appliances, white goods and others declined, but some respondents pointed out that there are some items for which sales exceeded those in the previous year. Moreover, foreign tourists mainly from Southeast Asia are having increasing effects on the economy. Comments from companies

- Production volume remains at a high level due to the launch of new smartphone models and brisk automobile demand. (Large electronic parts and device manufacturer/Kyoto Prefecture) - We will make business investment with a focus on production increases by raising capacity in this and the following quarters, because the interest rate of the Development Bank of Japan is so low that we can amortize all debts promptly with the capital investment tax reduction. (Small- and medium-sized production machinery and apparatus manufacturer/Hyogo Prefecture) - We lack part-timers. We cannot secure enough human resources because the number of applicants is insufficient to meet the number of offers. (Large machinery and apparatus retailer/Osaka Prefecture)

Region General economic

conditions Description of sector-specific conditions (major comments)

Chugoku

Picking up

（→）

○ Production remains flat. (↓) Production in the steel industry remains flat as domestic demand remains steady. Production in the chemical industry has slightly increased with items for which exports increased. Production in the automobile industry has slightly decreased with a reaction to the last-minute demand accompanying the consumption tax hike. Production in the general-purpose, production, and business oriented machinery industries remains flat due to steady demand for production equipment despite a reaction to last-minute demand accompanying the consumption tax hike in some sectors. Production in the electronic parts and devices industry has slightly increased with the steady demand for mobile devices mainly for overseas. ○ Business investment is picking up. (↑) In manufacturing industries, in addition to investment for capacity enhancement including setting up new equipment, maintenance and renewal, there is a positive trend toward increased orders received in response to new products. In non-manufacturing industries, although there has been a reactionary decline after large-scale store openings in the retail industry in the previous year, continuing investment in improving management efficiency is seen. ○ The employment situation is improving, increasing the sense of a labor shortage in a wide range of industries. (↑) There is a shortage of employees in production and technical fields due to an increase in production and orders received in the manufacturing and construction industries, and there is also a shortage of employees in the sales field associated with opening new stores in the retail industry. Some respondents point out that the sense of a labor shortage has become stronger across a wide range of industries. ○ Private consumption shows a reactionary decline after the last-minute increased demand preceding the consumption tax hike . (↓) At department stores, sales of luxury goods and cosmetics were sluggish due to a reaction to last-minute demand accompanying the consumption tax hike. At supermarkets and DIY stores, sales of daily expendables such as paper products grew at a sluggish pace, and sales of large-sized white goods such as air conditioners were also sluggish at major home appliance retailers. Automobile sales decreased despite demonstrable effects of the introduction of new car models.

Comments from companies - A temporary decline in sales was observed after the last-minute demand accompanying the consumption tax hike, but consumer confidence is basically on a recovery trend, showing no signs of decline in consumption. (Large retailer/Hiroshima Prefecture) - (As for the timing of recovering from the reactionary decline after the last-minute increased demand preceding the consumption tax hike), we kept a really close watch on sales in July, when the clearance sales started, and on the outcome of the first summer gift campaign season after the consumption tax hike occurred. (Large retailer/Hiroshima Prefecture) - (As for employment situation) We have a sense of an insufficient number of part-timers and temporary staff. We will make efforts to adjust internally, but if we fail to respond, our production may decrease. (Large manufacturer/Hiroshima Prefecture)

Region General economic

conditions Description of sector-specific conditions (major comments)

Shikoku

Showing some weak movements due to a reactionary decline after the last-minute increased demand preceding the consumption tax hike while remaining on an improving trend

（↓）

○ Production shows some weak movements amid signs of picking up. (↓) In the food, ceramics, stone and clay, and general-purpose and production machinery industries, production remains at a high level. Production shows signs of picking up, due to an increase in domestic and overseas demand in the electrical machinery industry, and due to increasing number of orders in the transport equipment (shipbuilding) industry. On the other hand, production in the pulp, paper, and paper-processed products, plastic products, and metal products industries has decreased partly due to a reaction to last-minute demand accompanying the consumption tax hike. As for projections, production is expected to show signs of picking up with diminished effects of the consumption tax hike. ○ Business investment shows some signs of picking up. (→) Although some companies have limited investment by focusing on the maintenance and renewal of equipment partly due to uncertainties about the future in industries including the food, chemical, petroleum and coal products, pulp, paper, paper-processed products industries, active investment is seen in response to a production increase and new orders received, and for R&D and new store openings in some industries including the textiles, plastic products, electrical machinery, transport equipment (shipbuilding), retail, and electric work industries. ○ The employment situation is improving. (→) While the majority of companies indicate that they have an appropriate number of employees, a wide range of industries, including the electrical machinery, transport equipment (shipbuilding), retail, services, and electric work industries, indicate that they have an insufficient or a slightly insufficient number of employees and a sense of a labor shortage, as they did in the previous survey. As for a future movement, many industries and companies intend to increase the number of employees, showing enhanced willingness of companies to hire employees. On the other hand, there are few companies intending to reduce the number of employees. ○ Private consumption shows weak movements due to a reaction of last-minute demand accompanying the consumption tax hike. (↓) Sales at department stores, supermarkets, and of home appliances show weak performance due to a reaction to last-minute demand accompanying the consumption tax hike. Automobile sales show signs of moderate picking up centered on compact and mini cars. Sales at convenience stores remain steady and the number of stores is increasing. Service consumption (travel) remains steady for domestic trips, although overseas trips are sluggish. Comments from companies

- Production remains steady, driven by the steady automobile industry. Production in the industrial machinery-related sectors is generally brisk. (Large manufacturer/Ehime Prefecture) - Although the reactionary decline after the last-minute increased demand preceding the consumption tax hike will subside in the future, we are uncertain about the future with a shortage of human resources and soaring raw material costs. (Small- and medium-sized constructor/Kagawa Prefecture) - We face a situation in which on-site employees are not able to take holidays, so we consider increasing the number of employees by hiring only regular employees. We have no plans to increase temporary staff or outsource. (Large manufacturer/Tokushima Prefecture)

Region General economic

conditions Description of sector-specific conditions (major comments)

Kyushu

Showing continuous moderate recovery despite some weak movements partly due to a reactionary decline after the last-minute increased demand preceding the consumption tax hike

（↓）

○ Production is moderately picking up. (↓) Although the core automobile industry shows a reactionary decline after the last-minute increased demand preceding the consumption tax hike, the main types of vehicles are on a recovery trend, and brisk demand in North America is observed. In the electronic parts and devices industry, demand for automobiles and smartphones remains steady, but that for audio-visual equipment and others continues to be sluggish. The industries including the general-purpose and production machinery, and electrical machinery industries are performing well due to vigorous business investment demand in China and other countries. In the basic materials-related industries including the chemicals and steel industries, some respondents pointed out that demand for automobiles, construction, etc. is strong, but general-purpose products and others are suffering from an oversupply in Asia as a whole. Production in the food and beverage-related industries generally remains steady, although some respondents pointed out that production would fail to grow, reflecting the anticipated cool summer this year. ○ Business investment is picking up. (↑) In manufacturing industries, there are signs of intensive investment in competitive businesses, and the willingness to invest has recovered in small- and medium-sized enterprises that had been stagnant in terms of capacity enhancement and renewal of equipment, due to an increase in orders received, as well as expansion into new business fields. In non-manufacturing industries, movements of store remodeling and active new store openings toward acquiring new customers continue to be seen, and there are also movements of investment in response to an improvement in the employment situation and other factors. In addition, there were movements of reducing energy costs both in manufacturing and non-manufacturing industries, while some respondents maintained that large-scale investment cannot be made due to uncertainty about the future. ○ The employment situation is picking up. (→) In manufacturing industries, some companies have the sense of a labor surplus mainly due to stagnant demand, but securing employees such as production staff is a challenge on the whole, and demand for skilled or experienced human resources is increasing. In non-manufacturing industries, there are movements of resuming the hiring of new employees for human resource development and acquiring human resources aimed at further growth. Under these situations, some respondents pointed out that it is impossible to secure the number of personnel to meet demand even by improving wages due to fierce competition in acquiring human resources. ○ Private consumption shows signs of picking up. (↓) The decrease in sales experienced after the consumption tax hike at large-scale retail stores is improving mainly due to promotional events and new product releases. There are some concerns about weather factors, but sales are expected to recover to the same level as those in the previous year around July with sales of summer items, etc. Sales of home appliances are expected to recover with bonus campaigns, as the reactionary decline was smaller than expected. Sales of travel and leisure-related sectors are at normal levels after May with little effect from the consumption tax hike. Condominium sales are slightly sluggish, reflecting a price hike, while automobile sales continue to show good performance for luxury cars and fuel-efficient compact cars. Sales of daily necessities for which the budget-minded attitude persists show a trend towards choosing items at a little higher unit price as well.

Comments from companies - Production decreased due to reaction to last-minute demand in April, but it is recovering moderately, centered on leading types of cars. (Large transport machinery manufacturer/Fukuoka Prefecture) - We have not made business investments, but we are considering expanding our business into environmental affairs and recycling fields, as well as investments in renewing equipment and increasing production. (Small- and medium-sized transport machinery manufacturer/Kagoshima Prefecture) - We invested in job advertisement and raised hourly wages, but failed to secure the number of employees to meet demand. (Small- and medium-sized retailer/Kumamoto Prefecture) - Holding a popular event leads to a slight increase in per-customer spending and the number of items purchased. Consumer confidence is recovering. (Large retailer/Fukuoka Prefecture)

Region General economic

conditions Description of sector-specific conditions (major comments)

Okinawa

Showing signs of a pause in improvement

（↓）

○ Production remains flat. (→) Profits of some industries have declined, due to an inability to increase prices despite the relative increase in prices of imported products and unit costs of materials imported from overseas, caused by the yen’s depreciation. In the food industry, on the other hand, profits have declined due to soaring raw material costs including flour, but there are signs of picking up with increasing demand as the summer tourist season approaches. ○ Business investment remains flat. (→) Investment is centered on the maintenance and renewal of equipment. Some companies which invested heavily before FY2013 have invested normally in FY2014. ○ The employment situation shows signs of improvement. (↑) Although it remains severe when compared with the national ratio, the effective ratio of job offers to applicants is on an improving trend, remaining at the highest level since the reversion to Japan (in 1972). While the majority of companies indicate that they have an appropriate number of employees after hiring new employees in April, there is a sense of an insufficient number of non-regular employees in the wholesale and retail industries, and engineers in the information and communication and construction industries. ○ Private consumption is on a recovery trend from a reactionary decline after the last-minute increased demand preceding the consumption tax hike. (↓) Sales at department stores and supermarkets showed a reactionary decline after the last-minute increased demand preceding the consumption tax hike in April, but are since on a recovery trend. Some respondents maintain that consumption remains unchanged due to population growth and use by tourists. As for travel, the number of tourists remains steady, due mainly to the yen’s depreciation and the geographical advantage of Okinawa, in addition to the effects of attracting customers due to the expansion of routes of low-cost carriers and the opening of New Ishigaki Airport. The number of tourists from overseas marked 91,700 in May, exceeding the record high of 90,000 tourists in a month, due to an increase in the number of tourists from Taiwan, the Republic of Korea, Hong Kong, China, etc. The number of tourists from Japan and overseas also marked a record high for May (up 17.5% year-on-year), thus, the number of tourists as a whole remains steady, exceeding the level of the same month in the previous year for the 20th consecutive month since October 2012.

Comments from companies - In the first quarter, production has been gradually increasing toward the high season since the fourth quarter, which shows the lowest production volume (demand) of the year. (Small- and medium-sized food manufacturer) - Consumer non-durable goods seem to show movements in accordance with the end of the rainy season. (Small- and medium-sized retailer) - Our business condition is positive with a direct link to an increase in the number of tourists entering the region. We see that the business outlook will also be good due to the full-scale opening of the resort season. (Large services business) - With the continuous increasing population of Okinawa (1.4 million people) and fluid population of tourists (5 million people), future consumption is unlikely to change. (Small- and medium-sized retailer)