Bank of Japan's May report of recent economic and financial developments  (Central Bank Articles and Speeches, 21 May 98)
Central bank: boj | Type: speech | Date: 1998-05-21

## Bank of Japan's May report of recent economic and financial developments 1Bank of Japan communication, 21/5/98.## The Bank's view 2Japan's economy remains stagnant with continued strong downward pressures o economic activities.With respect to final demand, public-sector investment seems to have bott out. However, growth in net exports has virtually peaked out as exports to other Asian decline. Business fixed investment has been on the decline. Private consumption shows of recovery although the deterioration has slowed. Housing investment remains weak. the background of weak final demand, inventories have accumulated further and indu production continues to decline. As a result, not only corporate profits but also empl income conditions have worsened significantly.The above indicates that production, income, and expenditure show negat interactions with one another. In these circumstances, the economic stimulus pack decided, and the fiscal 1998 supplementary budget bill was submitted to the Diet. measures are expected to boost demand through additional fiscal expenditure and special tax-reduction and thereby alleviate the downward pressures on the economy. In order Japanese economy to resume a self-sustained recovery, improvements in corporate household confidence are vital. Hence, the overall economic activity and the effec economic stimulus measures should be carefully monitored.With regard to prices, wholesale prices continue to fall, and the year increase in consumer prices (excluding the effects of institutional changes such as the consumption tax rate) has been declining close to zero. As for the future, the downwar on domestic prices, induced by the decline in import prices including overseas commodit is weakening. Also, the expansion in the output gap in the economy is expected to sl economic stimulus package is implemented. In the immediate future, however, prices ar to weaken reflecting the present high inventory level and the relatively large output gaIn the financial markets, both long and short-term interest rates fol declining trend with the releases of weak economic indicators. Yields on long-term gov bonds have recorded a historical low and stock prices remain soft. The yield different bonds issued by the private sector and those by the government, as well as the so-call premium', has remained at the relatively high level and shown no significant decrease, the continuing cautious attitudes of market participants toward credit risk.With respect to monetary aggregates, the growth in M 2 +CDs, which had picked up from the end of 1997, slowed in March and April. Also, the growth in broadly-defined has been declining since the middle of 1997.1 This report was written based on data and information available when the Bank of Japan Monetary Policy was held on May 19, 1998.2 The Bank's view on recent economic and financial developments, determined by the Policy Board at the Mo Policy Meeting held on May 19, as the basis of monetary policy decisions.Private bank lending remains sluggish. Although corporate financing via capital markets and government financial institutions continues to expand, the increase corporate financing seems to indicate a clear slowdown under the stagnant economic condBanks remain cautious in extending loans with a view to improving th medium-term profitability and financial soundness. In the capital markets, the dif fund-raising costs of firms has remained relatively large according to their creditwor such circumstances, some firms, especially small and medium-sized firms, have been difficult financing conditions and this influence on the economy continues to warrant monitoring.* * *NB This BIS Review is available on the BIS World Wide Web site ().\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_