Bank of Japan's monthly report of recent economic and financial developments  (Central Bank Articles and Speeches, 17 Dec 98)
Central bank: boj | Type: speech | Date: 1998-12-17

## Bank of Japan's monthly report of recent economic and financial developments 1Bank of Japan, Communication, 17/12/98.The Bank's View 2The economic deterioration in Japan has moderated somewhat, mainly as a result of the i in public investment.With respect to final demand, business fixed investment has been declining significa housing

investment continues to be sluggish.

Private consumption, as a whole, shows weakness.

Meanwhile, net exports (exports minus imports) are basically on an upward tre public investment has started to increase considerably.

Reflecting this development demand and some progress in inventory adjustments, especially in those of durable goo decline in production has been slowing.Corporate profits continue to worsen, and employment and household income conditions deteriorated as the ratio of job offers to applications has recorded a historical lo bonuses are expected to decrease.

Financial conditions are improving in some firms w effects of the policy measures taken by the government and the Bank.

Nonetheless, apparently cannot remove their anxiety about fund-raising conditions.

Consequently, c and household sentiment remains cautious, and a recovery has not been observed in demand.With the implementation of the government's comprehensive economic stimulus package a recently launched emergency economic measures, the economy is likely to be underpi mainly by public investment towards [= during?]the first half of fiscal 1999.

Further Bank's monetary and financial measures and the government's measures to alleviate the crunch are expected to take effect gradually.

Nevertheless, an immediate self-sustained in private demand is hardly expected since corporate profits and household inco deteriorating and the constraints from corporate finance are likely to persist for some to cautious lending attitudes of private banks.

Moreover, attention should be paid to t the appreciation of the yen since early autumn and the uncertainty in financial and developments abroad.

To lead Japan's economy into a steady recovery, it is important to an environment where firms and households can regain confidence in Japan's economic f by, for instance, promptly restoring the stability of the financial system.With regard to prices, reflecting the expansion in the output gap, wholesale prices downtrend, and corporate service prices are weakening.

Consumer prices have increased s above the previous year's level, owing to the rise in prices of perishables.

Excluding however, consumer prices basically continue to be weak.

As for the outlook, the ec deterioration is likely to moderate, mainly as a result of the increase in public Nonetheless, distinct narrowing in the output gap is hardly expected for the time being demand remains sluggish.

Furthermore, the continued decline in wages and the appreciat the yen since early autumn are likely to exert downward pressure on prices.

Hence, the prices, especially in wholesale prices, may somewhat accelerate in the future.1 This report was written based on data and information available when the Bank of Japan Monetary Policy Meeting was held on December 15, 1998.2 The Bank's view on recent economic and financial developments, determined by the Policy Board at the Monetary Policy Meeting held on December 15, as the basis of monetary policy decisions.Turning to the financial markets, Japanese banks are successfully raising foreign curr necessary to cover a huge shortage at the year-end.

Reflecting this, the Japan premium yen rates have peaked out, and the market's anxiety, which had previously intensi gradually settling down.

In the meantime, market interest rates on instruments maturing fiscal year-end (March 1999) are on an upward trend, suggesting continued concern of participants over liquidity risk.Yields on long-term government bonds have rebounded since late November.

Although st prices considerably recovered after hitting the recent bottom in October, they have softened again.

The yield spread (the government bond yield minus the expected earni stocks) remains extremely small or negative, reflecting market participants' continued outlook on the future of the economy.With regard to corporate finance, firms are further seeking to secure ample on-hand li fear of more difficulties in raising funds, especially toward the end of this fiscal large-scale redemption of corporate bonds is scheduled.

Meanwhile, private banks are co their cautious lending stance.In these circumstances, various policy measures seem to have prevented serious credit s the enhancement of [the ?]credit guarantee system[s ?] contributed to a recent increas to small and medium-sized firms; and the Bank announced the introduction of new measur addition to the continued ample supply of funds, to facilitate firms' financing Fundamentally, however, firms are still under severe fund-raising conditions.

How co financing conditions towards the year-end and the fiscal year-end develop, and ho developments influence business activities and the whole economy, continues to warrant monitoring.