, such as production, is expected to give favorable effects to corporate and household income gradually. consequently, economic developments still require careful monitoring, although the economy is turning to improve. further, it is important to promote structural reform in order to encourage a recovery in private demand. with regard to prices, import prices are increasing somewhat due to the rise to date in international commodity prices, such as crude oil prices. domestic wholesale prices, notwithstanding the fall in prices of electric machinery, are flat due to an increase in prices of some products closely related to this report was written based on data and information available when the bank of japan monetary policy meeting was held on 12 november 1999. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on 12 november as the basis of monetary policy decisions. international commodities, such as those of petroleum products. consumer prices remain unchanged. corporate service prices are still falling slowly. as regards the movements of overall prices in the future, they are likely to be flat despite the continued fall in prices of some goods and services, as the rise in crude oil prices to date will continue to be passed on to prices of other products for a while. however, substantial narrowing in the output gap led by a recovery in private demand is unlikely for the time being, and wages continue to follow a declining trend. thus, downward pressure on prices is expected to remain. in the financial market, the overnight call rate has stayed at nearly zero, and financial institutions have been confident about the availability of overnight funds. the amount outstanding of funds in the call money market has remained generally stable since the middle of june. as for interest rates on term instruments, short - term rates maturing before the year - end have remained at a historically low level. meanwhile, rates maturing beyond the year - end are rising due to market participants ’ concern over the year 2000 problem. the japan premium has continued to be nearly zero for short - term transactions, but there remains a small premium for transactions maturing beyond the year - end. yields on long - term government bonds rose to around 1. 9 per cent in late october. they declined somewhat thereafter and are presently moving between 1. 7 and 1. 8 per cent again. the yield spread between private bonds ( bank debentures and corporate bonds ) and government bonds once stopped contracting. however, there has recently been a conspicuous narrowing in the spread, primarily between private bonds with relatively low credit ratings and government

have a comparative advantage. this is not the first time that the japanese economy has faced structural adjustment pressures. in fact, it successfully confronted the challenge several times in the past. however, the adjustment this time has inevitably involved greater pains than in the past, due to the after - effects of the bursting of the economic “ bubble. ” furthermore, as relocation overseas took place prior to a shift to new products, structural adjustment significantly constrained domestic production and, as a result, investment and employment were also limited. the negative impact was particularly substantial for the smaller firms, as many of them manufactured labor - intensive products and were subcontractors to the large firms which relocated their production bases overseas. the key factors we should keep in mind in projecting future developments in the japanese economy are therefore the progress in the structural adjustment of industries, that is, the emergence of new products or industries that will promote future economic growth. a careful look at individual industries reveals some positive signs. in production, for example, an increasing number of firms and industries are shifting to goods with international competitiveness. more specifically, the production of producer goods and capital goods that are capital - intensive and technology - intensive has been increasing while the production of labor - intensive consumer goods has been declining. these changes are also reflected in imports and exports of goods. recently, exports of consumer goods, mainly household electric appliances such as television sets and radios, have been decreasing while their imports have been increasing, and exports of capital goods and parts such as electronic machinery and automobile parts have been increasing significantly. notable as these changes may be, one cannot simply add up these microeconomic developments to obtain a comprehensive evaluation of how successfully the japanese economy as a whole is undergoing the structural adjustment of industries. rather, the progress in structural adjustment should be reflected most evidently in the revitalization of forward - looking business activity. if this were the case, the stance taken by firms toward fixed investment and employment should provide a measure of the progress in macroeconomic structural adjustment. in this respect, business fixed investment by large firms began to recover in fiscal 1995 well ahead of small and medium - sized firms. investment by smaller firms, which had been more susceptible to structural adjustment pressures, has also finally begun to show a recovery. although the recovery is extremely moderate, this resumption of investment by smaller firms, an activity that lays the foundation for the future, may be considered as evidence of progress in structural adjustment as it indicates that these firms are starting to have a clear