bank of japan ’ s february report of recent economic and financial developments1 bank of japan, communication, 15 february 2000. * * * the bank ’ s view2 japan ’ s economy has recently started to improve. the economic environment surrounding private demand is gradually improving, as seen in the continuing increase in corporate profits. however, clear signs of a self - sustained recovery in private demand have not been observed yet. with regard to final demand, housing investment has peaked out and started to decline slowly, and public investment seems to be decreasing moderately. recovery in private consumption continues to be weak with the decrease in income, particularly in winter bonuses. business fixed investment, which had been on a downward trend, is starting to level off. meanwhile, net exports ( real exports minus real imports ) continue to follow an upward trend, despite monthly fluctuations, due to an upturn in overseas economies. reflecting such developments in final demand and progress in inventory adjustment, industrial production continues to rise and an increase in corporate profits is becoming distinct. in this situation, corporate sentiment continues to improve. regarding the employment condition, the decrease in the number of employees is gradually slowing. however, the improvements in corporate profits and sentiment have not stimulated business activities of many firms, because these firms still strongly feel that they have excess capacity and employees and that they should reduce their debts to restore financial soundness. in addition, efforts by firms to reduce personnel expenses have prolonged the severity of households ’ income conditions. as for the outlook, improvements in the overall financial environment partly due to the monetary easing by the bank, along with a series of economic measures taken by the government, are expected to continue underpinning the economy. moreover, the positive impact on domestic production of the recovery of overseas economies is likely to continue for some time and have favorable effects on corporate profits and then on household income. by contrast, it is highly probable that housing investment will continue to decline slowly, and public investment is expected to follow a moderately downward trend for some time. in the corporate sector, restructuring is gradually improving profitability to some extent and some firms in high - growth sectors are inclining toward increasing capital spending. many firms, however, are very likely to maintain a cautious stance toward fixed investment based on their modest prospects for sales. it seems that the appreciation of the yen since the summer of 1999 will have an adverse effect on corporate profits in the near term. in these circumstances, future economic developments still require careful monitoring in spite of the gradual recovery in the

##tive monetary policies as they seek to contain economic overheating and follow more sustainable economic growth paths. although the rate of global economic growth is still at a high level, it has been slowing. nevertheless, the global economy ’ s recovery trend appears to remain intact. the international monetary fund forecasts that the global economy will continue to achieve growth rates of over 4 percent in the coming years, projecting growth of 4. 6 percent in 2010 and 4. 3 percent in 2011. nevertheless, the bank considers that, regarding the outlook, the downside risks to the u. s. and european economies and their potential impact warrant more attention. the u. s. economy is burdened by balance - sheet adjustments similar to those experienced in japan following the collapse of the bubble. therefore, it has become more difficult for it to grow but easier for it to deteriorate. federal reserve board chairman ben s. bernanke has also expressed the view that the u. s. economy would continue to expand in the second half of 2010, albeit at a relatively modest pace, and it was reasonable to expect some pickup in growth in 2011. he also stated that macroeconomic projections were inherently uncertain, and the u. s. economy remained vulnerable to unexpected developments. ii. developments in the foreign exchange markets bearing these global economic developments in mind, we can now turn to the recent developments in the foreign exchange markets. looking back at movements in the u. s. dollar - yen exchange rate, the yen traded at around 90 yen against the u. s. dollar until the middle of 2010, but then appreciated since august and temporarily reached the range of 82 – 83 yen. the key factor behind the appreciation appears to be heightened uncertainty about the outlook for the global economy, particularly the u. s. economy. until around the spring of 2010, there were discussions in the united states on how to make the shift away from the accommodative monetary policies put in place after the financial crisis. however, as indicators suggesting the weakness in the u. s. economy have been released successively since the summer, as i mentioned earlier, the discussions about monetary policy exit strategies have been put on hold. in these circumstances of heightened uncertainty over the global economy, investors worldwide have increasingly avoided risks and purchased currencies that are considered to be relatively safe. for example, since july, the yen has risen by 3 percent, and the swiss franc by 8 percent, against the u. s. dollar. moreover