bank of japan ’ s june review of monetary and economic trends in japan bank of japan, communication, 20 / 6 / 97. japan ’ s economy continues on a moderate recovery trend on the whole. while declines in demand have been widely observed in reaction to the stepped - up demand prior to the rise in the consumption tax rate, production and income have been firm. with respect to final demand, public - sector investment has been decreasing, and housing investment has been somewhat lackluster, mainly in reaction to stepped - up demand ahead of the consumption tax hike. however, net exports have continued to rise and business fixed investment is increasing steadily. although personal consumption has declined in reaction to stepped - up demand, the recovery trend of personal consumption does not seem to have been hindered, under the improvement in labor market conditions and income formation. in these circumstances, industrial production has been firm, partly supported by the rebuilding of inventories which had fallen below appropriate levels owing to the temporary surge in demand ahead of the consumption tax hike. meanwhile, prices have remained virtually unchanged, excluding the influence of the consumption tax hike. the growth of monetary aggregates has continued at around 3. 0 per cent year to year. with regard to personal consumption, outlays for travel have continued on a moderately increasing trend. with respect to goods, sales, particularly of expensive items, have been declining since april following increased demand prior to the consumption tax hike. passenger - car sales recorded buoyant double - digit growth year to year for six consecutive months from october 1996 to march 1997, but marked double - digit declines year to year in april and may. sales of electrical appliances, as well as sales at department stores and supermarkets, fell significantly below the previous year ’ s level in april. may figures available for department stores in tokyo also show negative growth year to year, although with a smaller decline compared to that in april. however, the recovery trend in personal consumption does not seem to have been hindered, as labor market conditions as well as income formation are improving steadily, albeit moderately. among leading indicators of business fixed investment, machinery orders have been on a steadily increasing trend, despite some large fluctuations particularly in the nonmanufacturing sector. construction floor area has also continued to recover moderately. with respect to housing investment, housing starts in terms of the seasonally - adjusted annual rate reached a significantly high level in the fourth quarter 1996, partly reflecting the stepped - up demand ahead of the rise in the consumption tax

linkage with the dollar, such as emerging economies and commodity - exporting economies, have ended up importing u. s. monetary easing, which in turn brings about economic expansion in countries other than the united states. u. s. global firms, both manufacturing and nonmanufacturing, are deeply involved in business operations widely around the world. thus, economic expansion in areas with a strong linkage with the dollar would enhance the profits and growth expectations of u. s. businesses, which would in turn entail a rise in u. s. stock prices and lead to a recovery in private consumption. therefore, it can be said that the powerful monetary easing policy that has continued for more than two years in the united states has been entailing “ international spill - over effects ” of stimulating its economy at home, due to the rise in u. s. stock prices through the expansion of overseas economies. it is important to note that the unconventional policy measures being implemented in japan and the united states are not undisciplined, unlimited monetary easing. in the case of japan ’ s comprehensive monetary easing, and to clarify that it is after all a temporary and extraordinary policy measure, the asset purchase program has been established and managed on the bank ’ s balance sheet. similarly, in the case of the united states, federal reserve chairman ben s. bernanke emphasized that the large - scale asset purchase program is a short - term policy measure and the federal reserve is committed to achieving medium - to long - term price stability. so far, i have examined monetary policy and its effects on japan and the united states. what has been highlighted as a common factor is that, when market sentiment and confidence have swung excessively in the direction of pessimism, central banks ’ aggressive actions and asset purchases were made to correct that situation and influence risk premiums in a sustained manner. as mentioned earlier, in response to the earthquake, at the monetary policy meeting held at the beginning of last week, the bank decided to increase the amount of the asset purchase program, mainly of the purchases of risk assets, with a view to further enhancing monetary easing. this measure is expected to have an effect similar to the one mentioned above, in that, confronted with an unprecedented earthquake disaster, the measure aims at counteracting any deterioration in business sentiment or an excessive increase in risk aversion, thereby preventing economic activity from deteriorating. while uncertainty is likely to remain high, the measure taken by the bank