bank of japan ’ s december report of recent economic and financial developments1 bank of japan, communication 21 december 1999. * * * the bank ’ s view2 japan ’ s economy, which had stopped deteriorating, has recently started to improve, with exports and production increasing. the economic environment surrounding private demand is gradually improving, as seen in the continuing increase in corporate profits. however, clear signs of a selfsustained recovery in private demand have not been observed yet. with regard to final demand, housing investment has recently peaked out, and public investment seems to have stopped rising. recovery in private consumption continues to be weak through lack of notable improvements in employment and income conditions. business fixed investment, which had been on a downward trend, shows signs of leveling off. meanwhile, net exports ( real exports minus real imports ) continue to expand due to an upturn in overseas economies. reflecting such developments in final demand and continued progress in inventory adjustment, industrial production remains on an uptrend and an increase in corporate profits is becoming distinct. in this situation, corporate sentiment continues to improve. regarding the employment condition, there are some indicators that suggest a slowdown of decrease in the number of employees. the positive developments in corporate profits and sentiment, however, have not necessarily stimulated business activities, because firms still strongly feel that they have excess capacity and employees and that they should reduce their debts to restore financial soundness. in addition, efforts by firms to reduce personnel expenses have prolonged the severity of households ’ income conditions. as for the outlook, improvements in the overall financial environment partly due to the monetary easing by the bank, along with a series of economic measures taken by the government, are expected to continue underpinning the economy. moreover, the positive impact on domestic production of the recovery of overseas economies, especially of asian economies, is likely to continue for some time and have favorable effects on corporate profits and then on household income. by contrast, it is highly probable that housing investment will remain flat for the time being. in addition, firms are expected to maintain a cautious stance toward business fixed investment based on their modest prospects for sales, although corporate restructuring is improving profitability to some extent. moreover, it seems that the appreciation of the yen since the summer will have an adverse effect on corporate profits in the near term. in these circumstances, future economic developments still require careful monitoring in spite of the gradual recovery in the environment for private demand. furthermore, it is important to promote structural reform in order to facilitate

’ s monetary policy and the phasing - out of non - standard measures at our last monetary policy meeting, the governing council undertook a careful review of the progress made so far towards a sustained adjustment in inflation. specifically, we assessed inflation developments against the three conditioning criteria for net asset purchases : convergence, confidence and resilience. 1 / 4 bis central bankers'speeches as regards convergence, the june 2018 eurosystem staff projections see headline inflation reaching 1. 7 % in each of the next three years. these are the latest in a series of projections which foresee inflation converging towards our inflation aim of below, but close to, 2 % over the medium term. our confidence in the inflation path is also rising. first, the range of uncertainty around the inflation projections has narrowed. second, underlying inflation has increased from the very low levels that prevailed in 2016 and is foreseen to rise as the economy continues to expand, capacity utilisation strengthens and labour markets further tighten. finally, on the third criterion, the projected path of inflation appears to be self - sustained, i. e. resilient to a gradual ending of net asset purchases. on the basis of this assessment, the governing council concluded that progress towards a sustained adjustment has been substantial so far and should continue in the period ahead, although some uncertainties persist. we therefore anticipate that after september we will reduce our monthly net asset purchases from €30 billion to €15 billion and will end our net asset purchases at the end of december. this is subject to incoming data confirming our mediumterm inflation outlook. the expected end of the net asset purchases in december 2018 does not mean that our monetary policy ceases to be expansionary. monetary policy will have to continue to accompany the economic expansion for some time. we have therefore reaffirmed our reinvestment policy and enhanced our forward guidance on the key interest rates. we intend to maintain our policy of reinvesting the principal payments from maturing securities purchased under the app for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. and we expect key ecb interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with our current expectations of a sustained adjustment path. emu governance : taking stock of