owing to the decline in prices of imported products and their substitutes. corporate service prices continue to decrease. as for the conditions surrounding price developments, the past yen depreciation is exerting upward pressure on prices. however, with the ongoing adjustments in economic activities, the balance between supply and demand in the domestic market is likely to exert downward pressure on prices. furthermore, in addition to the declining trend of machinery prices caused by technological innovations, the decreases in the prices of goods and services reflecting deregulation and the streamlining of distribution channels will continue to restrain price developments. overall, prices are expected to be weak for the time being. moreover, given the high degree of uncertainty regarding future economic developments, the possibility that weak demand will intensify downward pressure on prices warrants careful monitoring. this report is based on data and information available at the time of the bank of japan monetary policy meeting held on july 12 and 13, 2001. the bank ’ s view of recent economic and financial developments, determined by the policy board at the monetary policy meeting held on july 12 and 13 as the basis for monetary policy decisions. in the financial market, the overnight call rate is basically moving around zero percent under the guideline for money market operations to maintain the current - account balance at the bank of japan at around 5 trillion yen. interest rates on term instruments are basically level on the whole. the japan premium remains negligible. yields on long - term government bonds rose after moving at around 1. 15 - 1. 2 percent until the end of june and are recently moving around 1. 3 percent. the yield spreads between private bonds ( bank debentures and corporate bonds ) and government bonds are mostly unchanged or contracting somewhat. stock prices are declining due mainly to the decrease in u. s. stocks. in the foreign exchange market, the yen is depreciating against the u. s. dollar and is currently being traded in the range of 124 - 126 yen to the u. s. dollar. with regard to corporate finance, private banks continue to be more active in extending loans, mainly to blue - chip companies, while carefully evaluating the credit risks involved. however, there are some signs indicating that the lending attitude of financial institutions perceived by small firms is becoming slightly more cautious. meanwhile, the fund - raising conditions of firms in the markets for such instruments as corporate bonds and cp continue to improve owing to the decline in market interest rates and the more active stance of investors to take credit

bank of japan ’ s october report of recent economic and financial developments1 bank of japan, communication, 16 october 2000. * * * the bank ’ s view2 japan ’ s economy is recovering gradually, with corporate profits and business fixed investment continuing to increase. with regard to exogenous demand, public investment is starting to decrease since the implementation of the supplementary budget for fiscal 1999 has peaked out. net exports ( real exports minus real imports ) continue to follow a moderate upward trend due to steady developments in overseas economies. as regards domestic private demand, business fixed investment is on an increasing trend. the recovery in private consumption continues to be weak as a whole through lack of notable improvements in employment and income conditions, although there are somewhat positive signs in some indicators. housing investment is mostly unchanged. reflecting such developments in final demand, industrial production is increasing. corporate profits and sentiment continue to improve, and the number of firms that take positive action, such as increasing the amount of fixed investment, is increasing, especially in high - growth sectors. income conditions of households still remain severe but regular and overtime payments as well as new job offers continue to increase in line with the recovery in corporate activities, and compensation of employees has stopped decreasing. as for the outlook, public investment is expected to decrease. while the expansion in overseas economies is likely to continue, the increase in exports is likely to slow down as restocking activity in asian economies has peaked out. meanwhile, imports are projected to continue increasing, particularly for those of information - related goods. therefore, real exports will level off for a while. in the corporate sector, firms still strongly feel that they have excess equipment and that they should reduce their debts to restore financial soundness. however, it is very likely that fixed investment in highgrowth sectors, including those related with information technology services, will increase as corporate profits continue to recover. moreover, an improvement in corporate profits will increase household income and this in turn is expected to boost private consumption. however, the pace of recovery in household income will be modest for the time being, since firms ’ perceptions of excess employment still persist, and thus significant changes have not been observed in their efforts to reduce personnel expenses. overall, the economy is likely to recover gradually led mainly by business fixed investment, while the developments in crude oil prices as well as foreign and domestic capital markets, along with their effects on the economy, need careful monitoring. in addition, the favorable financial environment created partly by the bank ’ s sustaining