Bank of Japan's April report of recent economic and financial developments  (Central Bank Articles and Speeches, 13 Apr 1999)
Central bank: boj | Type: speech | Date: 1999-04-13

## Bank of Japan's April report of recent economic and financial developments 1Bank of Japan, Communication, 13 April 1999.

## The Bank's View 2Japan's economy, at present, appears to have stopped deteriorating.With

regard to final demand, business fixed investment has been declining, and reco private consumption continues to be weak on the whole.

Net exports (exports minus impor leveling off.

Housing investment has started recovering, and public works orders are i considerably.Reflecting such development of final demand and progress in inventory adjustment, ind production has stopped decreasing.

The deterioration in corporate and consumer sentimen to have ceased, due to this economic situation as well as the subsidence of the publi about the stability of Japan's financial system.

However, corporate profits remain w employment and household income conditions continue to deteriorate.

In corporate fi firms' concern about the availability of funds in the future is gradually abating, completely disappeared.As for the outlook, with the progress in inventory adjustment gradually paving the w recovery in production, the government's economic measures and the monetary easing b Bank will underpin the economy.

In addition, the anxiety about the stability of the system is easing against the background of the injection of public funds into banks, prices are recovering.

These improvements in the financial environment are also expected positive effects on the economy gradually.

With respect to corporate activities, howe have started taking steps toward full-scale restructuring, facing the continued declin and strongly becoming aware of a need to improve their balance sheet.

Although such co restructuring is expected to improve productivity, it may, in the short run, reduce fixe and discourage household expenditure through the resulting deterioration in employme income conditions.

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

Overall economic developments require careful moni in consideration of the above points.

It is also important to prepare an environment f structural reform that assures the economy's sustained growth in the medium term.With regard to prices, reflecting the large output gap, domestic wholesale prices downtrend, and corporate service prices are weakening.

Consumer prices also remain we relation to price developments in the future, distinct narrowing in the output gap is the time being even though the economy appears to have stopped deteriorating.

Furthermo decline in wages is likely to continue exerting downward pressure on prices.

Hence, p expected to remain on a downtrend.In the financial markets, the overnight call rate has stayed at nearly zero, an institutions' anxiety about the availability of liquidity has rapidly subsided.

With th public funds, the Japan premium has almost disappeared, and interest rates on term ins have been at a low level.1 This report was written based on data and information available when the Bank of Japan Monetary Meeting was held on April 9, 1999.2 The Bank's view on recent economic and financial developments, determined by the Policy Board Monetary Policy Meeting held on April 9, as the basis of monetary policy decisions.The amount outstanding of funds in the call money market, after showing a recovery toward t previous fiscal-year end, has been decreasing again since the beginning of the new fiscal ye institutional investors shifted part of their funds to highly-liquid deposits of banks.

Alt shrinkage of the market has not led to any difficulty in funds settlement, close attention s paid to the market development.Long-term interest rates are declining gradually reflecting sluggish credit demand in the p sector.

Stock prices have been firm against the background of the market's appreciation of m toward corporate restructuring and the rise in U.S. stock prices.With regard to corporate finance, credit demand for economic activities such as fixed invest remains weak.

Firms' moves to increase their on-hand liquidity in the face of difficult raising conditions are settling down.Private banks have basically retained their cautious lending stance, facing the worse performance of borrower companies.

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

Under these circumstan seems that banks have started to extend loans more actively than before especially for pro involving relatively small credit risks.As a result, credit conditions, which tightened previously, are now easing somewhat.

It shou noted, however, that firms with relatively low credit ratings remain under severe finan conditions.

The situation continues to warrant careful monitoring on the extent to which pr banks will ease their lending stance, and how the change will affect firms' propensity to inv