bank of japan ’ s july report of recent economic and financial developments1 bank of japan, 16 july 2003. * * * the bank ’ s view economic activity remains virtually flat. with regard to final demand, business fixed investment is on a gradual recovery trend, albeit showing some fluctuations. meanwhile, private consumption continues to be weak, housing investment remains sluggish, and public investment is declining. net exports are virtually flat. industrial production continues to be basically level in response to these developments in final demand. corporate profits continue to recover, although the pace is moderating. under these circumstances, uncertainty regarding the economic outlook is diminishing somewhat, and business sentiment is improving to some extent, mainly among large manufacturing firms. as for the employment situation, the number of employees including non - regular employees such as temporary workers has almost stopped declining. however, the increase in the overtime hours worked and new job offers has come to a halt. firms are maintaining their stance on reducing personnel expenses, and household income still continues to decrease as wages are on a downtrend, albeit gradual. thus the employment and income situation of households overall remains severe. turning to the economic outlook, a widely shared view of the prospect for overseas economies is that the growth rate, especially that of the u. s. economy, will accelerate in the second half of this year reflecting diminished geopolitical risks. for the time being, however, the pace of recovery in the u. s. economy is projected to remain very gradual. moreover, economic activity in east asia has decelerated somewhat, due partly to the slower growth of domestic demand in south korea and the epidemic of severe acute respiratory syndrome ( sars ). in this situation, both exports and industrial production are projected to remain virtually flat for the time being. with respect to domestic demand, public investment is projected to follow a declining trend, and private consumption is likely to remain weak for some time due to the severe employment and income situation. meanwhile, the uptrend of business fixed investment is expected to become established in the period ahead, mainly in large manufacturing firms, whose investment has been thus far significantly restrained despite the recovery in their profits. however, the pace of increase in overall business investment is likely to remain modest, as long as uncertainty regarding a recovery in exports and production remains. overall, assuming that the growth rate of overseas economies accelerates in the second half of this year, the uptrend in exports and production will resume gradually, which in turn

shown by the fact that the year - on - year growth rate for the april – june quarter, which was released in july, registered 7. 5 percent. the economy has faced downward pressure, such as a slowdown in the real estate market, as authorities have been progressing with structural reforms. on the other hand, the slowdown in growth momentum observed since the beginning of the year has come to a halt due partly to the economic stimulus measures that the authorities have been implementing since the spring. as for the outlook, the chinese economy is likely to continue to see stable growth, albeit at a slightly slower pace. emerging and commodity - exporting economies – mainly the asean economies that are japan ’ s major export destinations – have continued to lack growth momentum. however, the positive effects of recovery in advanced economies have spread to some emerging economies. moreover, as the financial markets have been calm on the whole, a pick - up in domestic demand has been observed in some asian countries. if such developments bis central bankers ’ speeches continue, emerging and commodity - exporting economies should gradually show an improving trend, although a high degree of uncertainty remains. in the world economic outlook released by the international monetary fund ( imf ) in july, the growth rate of the overall global economy for 2014 was revised slightly downward – affected by the deceleration in the january – march quarter – but the projection of the growth rate accelerating toward 2015 remained unchanged. the bank likewise expects that the global economy will moderately increase its growth rate. this is mainly because, as the chinese economy is continuing to see stable growth – albeit at a slightly slower pace – positive effects of the firm recovery in advanced economies will gradually spread to emerging economies. b. japan ’ s economic activity and prices 1. current situation a. economic activity now i will discuss japan ’ s economic activity and prices. the bank ’ s current assessment is that japan ’ s economy has continued to recover moderately as a trend, although the subsequent decline in demand following the front - loaded increase prior to the consumption tax hike has been observed. looking at developments in private consumption since april 2014, despite the decline i just mentioned, many firms have indicated that the degree of the decline has been broadly in line with expectations. in terms of sentiment, the consumer confidence index, which had been relatively weak for some time, has improved for two consecutive months. yet a wide range of indicators should continue to be monitored closely, as the adjustments in some aspects of housing starts and of automobile sales