Bank of Japan's January report of recent economic and financial
developments1
Bank of Japan, 20 January 2006.
* * *
The Bank's view2
Japan's economy continues to recover steadily.
Exports have continued to increase, and the uptrend in industrial production has become evident.
Business fixed investment has continued to increase against the background of high corporate profits.
Household income has also continued rising moderately, reflecting the improvement in employment
and wages. In this situation, private consumption has been steady. Housing investment has continued
to show some strength. Meanwhile, public investment has basically been on a downtrend.
Japan's economy is expected to continue to recover steadily.
Exports are expected to continue rising against the background of the expansion of overseas
economies. Domestic private demand is likely to continue increasing against the background of high
corporate profits and the moderate rise in household income, while structural adjustment pressure,
such as the excess debt of firms, has almost dissipated. In light of these increases in demand both at
home and abroad, production is also expected to follow an increasing trend. Public investment,
meanwhile, is projected to remain on a downtrend.
On the price front, domestic corporate goods prices have continued to increase, mainly reflecting the
rise in international commodity prices and the depreciation of the yen in the second half of last year.
The year-on-year rate of change in consumer prices (excluding fresh food) has turned slightly positive.
Domestic corporate goods prices are expected to continue increasing for the time being, mainly due to
the effects of the rise in international commodity prices. As for the year-on-year rate of change in
consumer prices, a positive trend is projected to be established, as supply-demand conditions
continue improving gradually and the effects from the reduction in telephone charges dissipate.
As for the financial environment, the environment for corporate finance is becoming more
accommodative on the whole. The issuing environment for CP and corporate bonds is favorable. Also,
the lending attitude of private banks is becoming more accommodative. The lending attitude of
financial institutions as perceived by firms has been improving. The pace of decline in credit demand
in the private sector is very moderate. Under these circumstances, the rate of increase in the amount
outstanding of lending by private banks is accelerating, and the amount outstanding of CP and
corporate bonds issued has been above the previous year's level. The year-on-year growth rate of the
monetary base is 1.0 percent, and that of the money stock has been around 2.0 percent. As for
developments in financial markets, money market conditions continue to be extremely easy, as the
Bank of Japan continues to provide ample liquidity. In the foreign exchange and capital markets, the
yen's exchange rate against the U.S. dollar and long-term interest rates have been around the same
level as last month. Meanwhile, stock prices rose significantly through mid-January, and later fell. They
are currently above the level of last month.
Japan's economy is expected to deviate slightly above the outlook presented in the Outlook for
Economic Activity and Prices (the Outlook Report) released in October last year, as both domestic and
external demand continue to increase steadily. As for prices, domestic corporate goods prices are
expected to deviate slightly above the outlook, reflecting the rise in international commodity prices and
the depreciation of the yen in the second half of last year. Meanwhile, consumer prices are projected
to be broadly in line with the outlook.