Bank of Japan's March report of recent economic and financial developments  (Central Bank Articles and Speeches, 16 Mar 1999)
Central bank: boj | Type: speech | Date: 1999-03-16

## Bank of Japan's March report of recent economic and financial developments 1Bank of Japan, Communication, 16 March 1999.

## The Bank's View 2Japan's

economy, at present, appears to have stopped deteriorating.

With the inc public investment underpinning final demand, inventory adjustment has made further p and production has stopped decreasing.With regard to final demand, business fixed investment has been declining signif Recovery in private consumption continues to be weak on the whole, although p improvement in sales of goods has been observed.

Housing investment remains at a low but has obviously bottomed out.

Net exports (exports minus imports) are leveling public investment is growing considerably.

Reflecting this development of final dem further progress in inventory adjustment, industrial production has stopped de However, corporate profits have been declining, and employment and household inc conditions continue to deteriorate.

Although conditions in corporate finance are i firms apparently cannot remove their concern about the availability of funds in t Consequently, corporate and household sentiment remains cautious.As for the outlook, with the progress in inventory adjustment gradually paving the recovery in production, the government's economic measures and the monetary easing b Bank would underpin the economy.

In addition, measures to restore the stability Japanese financial system - especially the injection of public funds into banks - ar to exert positive effects on the economy gradually.

With respect to corporate however, large firms in particular appear to take steps to full-scale restructurin 1999, facing the continued decline in profits and the remaining concern about their In the short run, such corporate restructuring may reduce fixed investment and di household expenditure through the resulting deterioration in employment and i conditions.

Under such circumstances, it is still difficult to expect an immed sustained recovery in private demand.

Overall economic developments require ca monitoring in consideration of the above points.With regard to prices, reflecting the large output gap, domestic wholesale prices downtrend, and corporate service prices are weakening.

Consumer prices basically weak.

In relation to price developments in the future, distinct narrowing in the ou unlikely for the time being even though the economy appears to have stopped deteri Furthermore, the decline in wages and the appreciation of the yen since autumn 1 likely to continue exerting downward pressure on prices.

Hence, prices are expected on a downtrend.In the financial markets, the additional monetary easing by the Bank on February lowered interest rates both on overnight call money and term instruments.

In addi markets' anxiety about liquidity and credit risks of Japanese banks seems to have s1 This report was written based on data and information available when the Bank of Japan Monetary Meeting was held on March 12, 1999.2 The Bank's view on recent economic and financial developments, determined by the Policy Board Monetary Policy Meeting held on March 12, as the basis of monetary policy decisions.as reflected in a rapid contraction in the Japan premium - partly due to the progre preparation for public funds injection.Meanwhile, the amount outstanding of funds in the call money market has decreased, part because some institutional investors have shifted a part of their funds from the mark ordinary deposits.

The shrinkage of the market has not led to any difficulty in f settlement.

However, close attention should be paid to developments in the flow of fund unexpected changes may occur.Long-term interest rates have, amid nervous market sentiment, declined following the fal short-term rates.

Stock prices have turned to be firm against the background of the r depreciation of the yen and the rise in U.S. stock prices.With regard to corporate finance, credit demand for economic activities such as fi investment remains weak.

Firms' moves to increase their on-hand liquidity in the face difficult fund-raising conditions are settling down.

Meanwhile, private banks have basi retained their cautious lending stance, facing the worsening performance of borrow companies.

However, severity in their fund-raising conditions has been alleviated, and insufficient capital base is about to be increased.

Under these circumstances, banks co to actively utilize the credit guarantee system.As a result, the previously tightened credit conditions are easing somewhat.

Nevertheles market is still cautious of credit risk, and thus firms with relatively low credit ratin remain under severe fund-raising conditions.The situation continues to warrant careful monitoring, particularly with regard to corporate finance develops toward the turn of the fiscal year.