bank of japan ’ s march report of recent economic and financial developments1 bank of japan, 6 march 2003. * the bank ’ s view * * economic activity remains flat amid substantial uncertainty about the outlook for the economy. with regard to final demand, while business fixed investment has been virtually level, private consumption continues to be weak. moreover, housing investment remains sluggish and public investment is declining. while domestic demand has yet to show signs of recovery, both exports and imports are increasing at a very modest pace with net exports remaining virtually level. industrial production continues to be basically level in response to these developments in final demand. as for the employment situation, new job offers are on a gradual rising trend. in addition, the number of employees, which covers various types of employees including non - regular employees such as temporary workers, appears to be declining at a slower pace. however, firms are still maintaining their stance on reducing personnel expenses, and household income continues to decrease significantly due mainly to an ongoing decline in wages. thus, the employment and income situation of households overall remains severe. turning to the economic outlook, a widely shared view of the prospect for overseas economies in 2003 is that, partly due to the continued firmness in asian economies, they will follow a gradual recovery path. however, their recovery is likely to be anemic, at least for the time being, given the sluggish improvement in the u. s. economy and further weakness in european economies. in this situation, the increase in exports is expected to remain very modest, and industrial production is likely 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 is unlikely to recover clearly for the time being due mainly to substantial uncertainty regarding overseas economies. overall, assuming that overseas economies will recover in 2003, albeit only at a moderate pace, the increase in exports will accelerate and the uptrend in production will resume sooner or later, which in turn will initiate the momentum for a recovery. however, the economy is unlikely to show clear signs of recovery for some time, since production is expected to be virtually unchanged for the time being while downward pressures such as excessive labor input and debt persist. furthermore, the downside risk to the economic outlook for overseas economies continues

held by commercial banks from november 2002 to reduce the risk that stock price fluctuations might impact negatively upon the business management of individual financial institutions, potentially resulting in instability of the financial system as a whole. the total amount of stocks purchased by the bank as of july 20, 2003 was 1, 505. 9 billion yen. conclusion as mentioned, in response to the severe economic situation, the bank has been bold in its implementation of measures deemed necessary, including measures that are unusual for a central bank. at the same time, the bank is making efforts to ensure its financial soundness by appropriately assessing the risk associated with holding new assets. the bank considers its financial soundness to be fundamental to ensuring its ability to conduct monetary policy into the future and to maintaining the public ’ s confidence in the currency. japan ’ s economy is still striving to construct a new system to accommodate the significant changes that have occurred since the late 1980s, such as globalization, innovations in information and communication technology, and societal aging and the declining birth rate. given the various constraints involved, this is a formidable challenge. nevertheless i believe that, by putting to use the high levels of technology and creativity at japanese firms, our economy will ultimately succeed in realizing this goal. while taking into account the private sector ’ s efforts, the bank, for its own part, will continue to do its utmost to overcome deflation and put the economy back on a sustainable growth path.