- sustaining recovery in domestic demand is unlikely to gain momentum for some time, since production is expected to be virtually unchanged for the time being while downward pressures such as excessive labor input and debt persist. furthermore, the outlook for overseas economies warrants careful monitoring with more uncertain factors arising such as iraq - related developments and economic implications of the severe acute respiratory syndrome ( sars ). on the domestic side, careful monitoring is required of developments in stock prices and how they affect the financial system, corporate finance, and the economy. on the price front, import prices are rising, reflecting developments in prices of overseas commodities such as crude oil. domestic corporate goods prices have stopped declining on the whole with the rise in import prices and the improved supply - demand balance in materials industries, despite the this report is based on data and information available at the time of the bank of japan monetary policy meeting held on april 7 and 8, 2003. the bank ’ s view of recent economic and financial developments, determined by the policy board at the monetary policy meeting held on april 7 and 8, 2003 as the basis for monetary policy decisions. continued fall in machinery prices. meanwhile, consumer prices and corporate services prices have been declining gradually. looking at the conditions influencing price developments, the outlook for import prices is unclear at present because it largely depends on developments in crude oil prices. on the domestic side, the supply - demand balance in the macroeconomy, ongoing technological innovations in machinery, and the streamlining of distribution channels will continue to exert downward pressure on prices. in contrast, upward pressure is also at work, such as the effects of high crude oil prices to date and the improvement in the supply - demand balance in materials industries. of these two opposite pressures, the latter will be slightly stronger at the corporate transaction stage for the immediate future, and therefore, domestic corporate goods prices are projected to inch up. as for the outlook, consumer prices are expected to continue decreasing but the pace of year - on - year decline is expected to become somewhat slower, as medical costs are projected to rise from april due to public insurance reforms. as for the financial environment, the bank of japan provided further ample liquidity to secure financial market stability, following the commencement of military action against iraq by the united states and other nations ( march 20, japan standard time ). as a result, the outstanding balance of current accounts at the bank rose to 30. 9 trillion yen at the end of march. under these circumstances, the overnight call

rate continues to hover at very close to zero percent, although it rose temporarily on march 31. longer - term interest rates such as tb and fb rates also rose temporarily toward the fiscal year - end, but they are becoming steady again at low levels. yields on long - term government bonds declined and were temporarily moving below the 0. 7 percent level in early april, reflecting uncertainty over the domestic economic outlook. yield spreads between private bonds ( bank bonds and corporate bonds ) and government bonds are contracting. in the stock market, market participants continue to be nervous largely due to uncertainty over the developments in military action against iraq. the nikkei 225 stock average is recently moving at the 8, 000 - 8, 500 yen level. in the foreign exchange market, the yen appreciated in early march as the u. s. dollar weakened on the whole. since mid - march, however, the yen has been volatile reflecting the developments in military action against iraq. the yen is currently traded in the range of 119 - 121 yen to the u. s. dollar. with regard to corporate finance, private banks remain cautious in extending loans to firms with high credit risks while they continue to be more active in extending loans to blue - chip companies. the lending attitudes of financial institutions as perceived by firms, particularly small ones, are severe. in the corporate bond and cp markets, the issuing environment for firms with high credit ratings is accommodative, but the overall environment for firms with low credit ratings remains severe although there seem to be slight improvements. credit demand in the private sector continues to follow a downtrend mainly because business fixed investment is at low levels and firms are continuously reducing their debts. amid these developments, private banks ’ lending continues to decline by about 2 - 3 percent on a year - on - year basis. the amount outstanding of corporate bonds and cp issued is moving at around the previous year ’ s level. meanwhile, according to business surveys, financial positions of firms, particularly those of small firms, remain severe. the year - on - year growth rate of the monetary base is about 10 percent. the year - on - year growth rate of the money stock is around 2. 0 percent. funding costs for firms continue to be at extremely low levels on the whole. against the above background, the financial developments are summarized as follows. money market conditions as a whole continue to be extremely easy. long - term interest rates are declining slightly. the money stock and the monetary base maintain high