bank of japan ’ s november report of recent economic and financial developments1 bank of japan, 20 november 2002 * the bank ’ s view * * japan ’ s economy has stabilized as a whole, but there is greater uncertainty toward recovery. with regard to final demand, while the decline in business fixed investment has almost come to a halt, private consumption continues to be weak. moreover, housing investment remains sluggish and public investment is declining. while signs of recovery are still not observed in domestic demand, exports are losing their momentum. the completion of the cutbacks in inventory stocks still underpins the increase in industrial production, but the pace of increase has become slower as exports are not rising anymore. as for the employment situation, the overtime hours worked continue to increase and the number of employees, which widely covers various non - regular employees such as temporary workers, appears to have stopped declining. however, as firms are still maintaining their stance on reducing personnel expenses, household income continues to decrease noticeably due to, among other factors, an ongoing decline in wages. thus, the employment and income situation of households overall remains severe. turning to the economic outlook, a widely shared prospect for overseas economies throughout next year is that they will follow a gradual recovery path. however, an increasing number of economic indicators are softening in some countries, particularly in the united states. based on this development, the recovery in overseas economies is likely to be anemic at least for the time being. therefore, exports and industrial production are expected to be more or less unchanged for the immediate future. 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. business fixed investment is expected to be supported by the improvement in corporate profits to date, but a distinct recovery is unlikely for the time being due to, among other things, greater uncertainty regarding overseas economies. overall, assuming that overseas economies will recover next year even at a moderate pace, the increase in exports and production will resume, making the foundations of japan ’ s economic recovery gradually firmer. however, the economy is unlikely to show clear signs of recovery for some time, since exports and production are expected to be virtually unchanged for the time being while restraining forces such as excessive labor input and debt persist. furthermore, the uncertainty regarding the outlook for the u. s. and other overseas economies, including geopolitical factors and their effects on the economies, is becoming

of a change in the policy is likely to gradually increase over the course of fiscal 2006. as long as upward pressures on prices continue to be to a large extent contained and the economy follows a sustainable and balanced growth path, this will likely give the bank latitude with regard to changes in the policy framework and the subsequent conduct of monetary policy. based on this thinking, the bank will continue to conduct monetary policy in an appropriate manner giving due consideration to changes in economic activity and prices, as there is uncertainty with regard to their future developments. 6 / 6