The government recently lowered its monthly evaluation of the economy, saying that it was sliding further into recession, as production, exports and investment had fallen and the jobless rate holds at a record high. The slowdown has been coupled with a strengthening yen although the central bank has been taking measures to reduce upward pressure on the currency. In the long term, sustainable growth depends on the recovery of consumer confidence and on continued corporate restructuring to make companies more efficient and profitable. Consumer sentiment is likely to receive a further blow from developments in the US and the dollar could weaken against the yen for the same reason. Recent job losses in industry have been heavy and further reductions may delay a recovery in consumer confidence.
Investors are likely to remain focused on the progress of domestic structural reforms.
The unwinding of cross-shareholdings could be a risk to the Japanese equity market over the coming months. The recent terrorist strikes in the US have made stock market developments more difficult to predict in the short term. The outlook for economic growth in the eurozone has suffered a setback as consensus Gross Domestic Product growth estimates for 2001 have been revised down, business confidence has weakened and exports have slowed. Consumer confidence may also diminish, given a downturn in employment growth, as firms lay off staff to keep costs in check. Markets are likely to remain volatile amid the uncertainties over the economy and political events.