of some products closely related to international commodities, such as those of petroleum products. consumer prices are also leveling out. on the other hand, corporate service prices continue to decline. for a while, movements of overall prices are likely to be flat, as import prices are rising and the decline in domestic commodity prices has come to a halt reflecting the progress in inventory adjustment. however, distinct narrowing in the output gap is this report was written based on data and information available when the bank of japan monetary policy meeting was held on august 13, 1999. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on august 13 as the basis of monetary policy decisions. unlikely for the time being even though the economy has stopped deteriorating, and wages continue to decline. 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. interest rates on term instruments slightly increased from the middle of june but then fell back, and have recently been steady. however, those on instruments maturing beyond the year - end are relatively high partly due to market participants ’ concern over the year 2000 problem. the japan premium has continued to be nearly zero. yields on long - term government bonds fell to the level of 1. 6 percent in the middle of july, but have slightly increased to 1. 8 - 1. 9 percent. the yield spread between government bonds and private bonds, especially corporate bonds with relatively low credit ratings, has narrowed further. stock prices fell in late july against the background of the appreciation of the yen and the recent weak tone in u. s. stock prices. the current level is around 17, 000 - 17, 500 yen. the amount outstanding of funds in the call money market has remained generally stable since the middle of june. to date, this has not led to any difficulty in funds settlement, but close attention should be paid to future market developments. with regard to corporate finance, private banks have basically retained their cautious lending attitude. however, constraint that had been caused by severe fund - raising conditions and insufficient capital base has eased considerably. under these circumstances, major banks have gradually become more active than before in extending loans, while carefully evaluating the credit risks involved. however, credit demand for economic activities such as business fixed investment remains weak. in addition, firms ’ moves to increase their on - hand liquidity have

on the real economy - - was an acute disease, so to speak, so it was clear what solutions should be prescribed. meanwhile, the problem that has emerged recently can be described as a chronic disease, given that dollar - denominated debts built up by emerging economies, including china, and commodity - exporting economies during the period of monetary easing in the united states are coming to the fore again as a debt overhang issue since the start of a liftoff by the federal reserve. it will probably take a long time before this problem can be cured. looking back at developments in the world economy during the recent period, the annualized growth rate of the u. s. economy, which is the driving force of the world economy, was a low 0. 8 percent in the january - march quarter because of the sluggishness in industrial production accompanying the appreciation in the u. s. dollar and the decline in commodity prices and because of unfavorable weather conditions in the winter. according to the nowcast by regional bis central bankers ’ speeches federal reserve banks and other forecasts, the growth rate appears likely to be somewhat higher in the april - june quarter. however, the u. s. employment statistics for april, the latest month for which the data is available, showed a slight slowdown in employment after a period of firm growth. with the economic recovery phase about to enter its eighth year, the economic cycle is presumed to be gradually reaching maturity. therefore, at the beginning of the year, there were even voices of concern over a possible economic downturn. although such fears have proved unfounded, there is the risk that productivity growth will be sluggish as business fixed investment continues to lack momentum amid the prolonged slowdown in emerging and commodity - exporting economies. under these circumstances, i am paying attention to the risk that a squeeze on firms ’ profit margins may affect employment, income, and consumption if wages increase too rapidly relative to the productivity growth because of tight labor market conditions. meanwhile, the chinese economy is generally regaining stability despite a slight slowdown mainly in exports and production, as the effects of the economic stimulus measures taken by the authorities are apparently starting to appear. the exchange rate of the chinese yuan, which became a source of the instability in the global financial markets since last year, has recently stayed stable and the stock market is also in a state of calm. the somewhat moderate decline in the yuan ’ s effective exchange rate following the recent pause in the rise