bank of japan ’ s june report of recent economic and financial developments1 bank of japan, 12 june 2003. * * * the bank ’ s view2 economic activity remains virtually flat as a whole, although exports are currently showing some weakness. 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 currently somewhat weak, although their underlying trend remains virtually flat. industrial production continues to be basically level in response to these developments in final demand. under these circumstances, corporate profits continue to recover, although the pace is moderating. as for the employment situation, the number of employees, which covers various types of employees including non - regular employees such as temporary workers, appears to be declining at a slower pace. however, the increase in the overtime hours worked and new job offers has come to a halt. firms are still maintaining their stance on reducing personnel expenses, and household income continues to decrease with the ongoing decline in wages. 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 with diminishing uncertainty regarding iraq - related developments. for the time being, however, the pace of recovery in the u. s. economy is projected to remain very gradual. moreover, the growth of east asian economies at present is likely to be slowing at least temporarily, due mainly to the deceleration of domestic demand in south korea and the epidemic of severe acute respiratory syndrome ( sars ). in this situation, for the time being, exports are projected to be slightly weak or flat and industrial production is expected to remain virtually level. 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. an uptrend of business fixed investment will be established once exports and production increase clearly again, but for the time being, the increase in business investment is expected to remain very modest. 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 sooner or later, which in turn will initiate the momentum for an economic recovery in japan.

recovering. the money stock and the monetary base maintain high growth rates relative to that of economic activity as a whole. in corporate finance, the fund - raising environment has not changed significantly, that is, the environment for firms, particularly with high credit risks, remains severe, although slight improvements are observed such as in the issuing environment of corporate bonds and cp. developments in the financial and capital markets, the behavior of financial institutions, and the situation of corporate finance continue to require close monitoring.