perceptions of excess employment still persist, and thus significant changes have not been observed in their efforts to reduce personnel expenses. industrial production is expected to remain on a rising trend, although the pace of increase may slow down further temporarily. this report was written based on data and information available when the bank of japan monetary policy meeting was held on december 15, 2000. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on december 15 as the basis of monetary policy decisions. overall, the economy is likely to follow a gradual upward trend led mainly by business fixed investment, while the developments in overseas economies as well as in foreign and domestic capital markets, along with their effects on the economy, need to be carefully monitored. in addition, the favorable financial environment created partly by the bank ’ s sustaining easy monetary stance and the new economic stimulus package by the government are expected to underpin the economy. with regard to prices, import prices are rising, reflecting an increase in international commodity prices such as crude oil prices. domestic wholesale prices, notwithstanding the rise in prices of petroleum products reflecting the increase in crude oil prices, are declining somewhat mainly due to the decrease in prices of electrical machinery. consumer prices continue to be somewhat weak owing to the decline in prices of other imported products and their substitutes, although prices of petroleum products increased. corporate service prices are still falling slowly. as for the condition surrounding price developments, the balance between supply and demand in the domestic market is projected to be on a gradual improving trend, while an economic recovery is expected to continue moderately. on the other hand, semiconductor prices are declining reflecting softer international semiconductor prices, and crude oil prices, which had been exerting upward pressure on prices, are dropping recently. in addition to the declining trend of machinery prices due to technological innovations, the decrease in prices of consumer goods arising from the streamlining of distribution channels will exert downward pressure on prices. overall, prices are expected to be somewhat weak for the time being. in the financial market, the overnight call rate is moving around 0. 25 percent. as for interest rates on term instruments, euro - yen transactions, tb and fb rates maturing beyond the year - end are rising somewhat. the japan premium remains negligible. yields on long - term government bonds have been on a downward trend since mid - october, having decreased to around 1. 55 percent temporarily, and are recently moving around 1. 65 percent. the yield

production. and, in the financial and capital markets in and outside japan, pessimism regarding the future course of the economy and prices has been receding with the rise in stock prices. problems facing japan ’ s economy yet, there remain a host of long - term problems that must be overcome. though the growth of japan ’ s economy has been forced down at a lower rate since the bursting of the bubble, there have, in fact, been several recovery phases. however, these nascent recoveries repeatedly failed to lead to a full - fledged growth path because of recession overseas and concern about financial instability at home. one of the factors responsible is that such structural problems as debt overhang and excess labor have yet to be resolved. for example, when production and corporate earnings increased amid vibrant overseas economies, firms were forced to make, or strategically effected, the repayment of outstanding debt, and there was no expansion of business fixed investment. and, efforts on the part of the corporate sector to shed excess labor kept employment and income conditions severe, thereby restraining personal consumption. in a nutshell, pressures to correct past excesses hampered domestic demand from achieving a self - sustained recovery. but, are these sufficient reasons explaining the prolonged stagnation of japan ’ s economy? looking at past history a little more closely, we have come to realize that the problems are more than just the aftermath of the bursting of the bubble, such as debt overhang and excess labor. we are actually facing more deep - rooted and difficult problems. since the late 1980s, the world economy has witnessed a sea change in the form of globalization and revolution in information and communications technology. thus, before we discuss possible resolutions to the problems facing japan ’ s economy, it may be a useful exercise to put them in a global and historical context. on a global scale, a disinflationary trend is intensifying. for example, the average growth rate of the consumer price index in g7 countries decreased from around 7 percent in the first half of the 1980s to the 3 percent level in the second half, and to a less than 2 percent level between 1996 and 2002. this certainly shows that central banks ’ conduct of monetary policy has successfully contained inflation. more fundamentally, this trend may reflect the impact on price determination of globalization and the revolution in information and communications technology. the transition of emerging countries to market economies has greatly expanded global supply capacity. furthermore, firms with a dominant power in setting prices in various markets segment