bank of japan ’ s december review of monetary and economic trends in japan bank of japan, communication, 22 / 12 / 97. japan ’ s economic growth has stalled. weak household expenditures have gradually affected production, employment and income. corporate sentiment is also deteriorating. with respect to final demand, net exports have continued to increase and business fixed investment has been rising moderately, particularly in the manufacturing sector. meanwhile, public - sector investment has been decreasing, and housing investment has also continued to be weak. personal consumption has continued to stagnate, reflecting weakening consumer confidence. industrial production has been on a slightly declining trend because inventory adjustment pressure has spread gradually reflecting weak final demand. the pace of improvement in employment and income conditions has been slowing. prices have remained stable on the whole, with the exception of wholesale prices which have declined somewhat. monetary aggregates continue to grow at around 3 per cent. personal consumption has continued to stagnate. although outlays for travel have been increasing moderately, passenger car sales have fallen significantly below the level recorded in the second half of fiscal 1996 when sales surged, and have not even recovered the levels recorded before then. the recovery in sales of household electrical appliances has paused and sales at department stores and supermarkets have remained below the previous year ’ s level. among leading indicators of business fixed investment, machinery orders continued to increase since early 1997 after having surged in the second half of 1996. recently, orders from nonmanufacturing firms have been weak, however. construction floor area has followed a moderate recovery trend, albeit with some fluctuations. according to the bank of japan ’ s tankan - - short - term economic survey of enterprises of december, investment growth in the principal nonmanufacturing firms for fiscal 1997 is projected to be lower than that in fiscal 1996, while growth in the principal manufacturing firms is planned to be higher than that in the previous fiscal year. this makes the growth of investment plans in principal firms overall the same as the previous year. meanwhile, overall investment plans by small firms in fiscal 1997 are lower than those for fiscal 1996. this is because investment plans of nonmanufacturing firms fell significantly below the previous year, although plans of manufacturing firms at this time of the fiscal year grew at a somewhat higher pace compared to fiscal 1996. with respect to housing investment, housing starts in terms of the seasonally - adjusted annual rate declined in july to 1. 24 million, the lowest level since september 1985, following the surge in demand in

##ously set by the eurosystem – will demand a steep learning curve from policymakers, businesses, trade unions and the public at large. conclusion i should like to conclude by remarking that the establishment of economic and monetary union marks an outstanding historical achievement, a new quality in the process of europe ’ s integration. while we can certainly look back on the first few months of this endeavour with considerable satisfaction, we are aware that the task of making emu a success will be an ongoing one. but, as my remarks have revealed, there is every reason for optimism : the euro ’ s success is built on sound foundations. further improvements are, of course, necessary, but we are confident that they will be accomplished. clearly, the eurosystem ’ s stability - oriented monetary policy is a principal ingredient of a successful emu, in which the euro enjoys both the trust of citizens as well as the confidence of investors.