The Bank of Japan's April report of recent economic and financial developments  (Central Bank Articles and Speeches, 13 Apr 98)
Central bank: boj | Type: speech | Date: 1998-04-13

## The Bank of Japan's April report of recent economic and financial developments Bank of Japan communication, 13/4/98.Japan's economy remains stagnant reflecting weak domestic demand, such a household expenditures. In addition, corporate sentiment has been deteriorating industries, indicating strong downward pressures on economic activities.With respect to final demand, growth in net exports, which had been underpi the economy, has slowed and business fixed investment seems to have started declining. consumption has continued to stagnate despite the implementation of the special measures. Housing investment has also continued to be weak and public-sector investmen a decreasing trend. Against the background of significant accumulation of inventories weak final demand, industrial production has continued to decline. Consequently, impacts on corporate profits as well as on employment and income conditions have intensifying, and are leading to a further deterioration of domestic demand.As regards the outlook for the economy, growth in net exports is unlikely strong enough to prevent the deterioration of the economy, partly reflecting further a in other Asian economies. Business fixed investment will continue to decrease due main decline in corporate profits and is likely to enter an adjustment phase. With regar consumption, distinctive recovery can not be expected against the background of the we of income formation, although consumer confidence may cease to wane. Downward pressu on economic activities, particularly on production, are likely to continue to be strong being, because the level of inventories is high and a conspicuous recovery in domesti demand is unlikely. However, following the implementation of measures to stabili financial system and the special tax-cut measures, additional economic stimulus packag being discussed. The details of the package and their effects on corporate and h confidence should be carefully monitored.With regard to prices, wholesale prices have continued to decline reflectin supply and demand conditions of goods in domestic and overseas markets. The year-t increase in consumer prices (excluding the effects of institutional changes such as th consumption tax rate) has been declining close to zero . As for the future, prices likely to soften reflecting the continuous expansion of the output gap in the domesti and the decline in overseas commodity prices. These price developments, which might further negative impacts on corporate activities, may require close monitoring.Financial markets have shown the following developments. In the mone markets, interest rates on term instruments and the so-called 'Japan premium' d substantially from the end of February through the middle of March and have generally r steady thereafter. This reflects the Bank of Japan's ample provision of funds through that mature after the fiscal year-end as well as the progress in implementing the finan stabilization measures. It should be noted, however, that the levels of the above premium are still high compared with those prevailing before autumn 1997, which ca attributed to the continuing cautious attitudes of market participants toward cr Meanwhile, with the releases of weak economic indicators, long-term government bond y have fluctuated in a historically low range and stock prices have been declining since March.With respect to monetary aggregates, the growth in money stock continued t rather high in February due to the substantial shift of funds away from investmen Meanwhile, private bank lending remains sluggish. However, with an increase in cor financing via the capital market, a substantial fall in overall corporate fund-raising been avoided.Banks remain cautious in extending loans with a view to improving their med term profitability and financial soundness. Fund-raising costs of firms continued according to their credit standing. In such circumstances, some firms, especially medium-sized firms, have been facing difficult financing conditions and this effec economy continues to warrant a careful monitoring.