bank of japan ’ s january report of recent economic and financial developments 1 bank of japan, 20 january 2006. * * * the bank ’ s view 2 japan's economy continues to recover steadily. exports have continued to increase, and the uptrend in industrial production has become evident. business fixed investment has continued to increase against the background of high corporate profits. household income has also continued rising moderately, reflecting the improvement in employment and wages. in this situation, private consumption has been steady. housing investment has continued to show some strength. meanwhile, public investment has basically been on a downtrend. japan's economy is expected to continue to recover steadily. exports are expected to continue rising against the background of the expansion of overseas economies. domestic private demand is likely to continue increasing against the background of high corporate profits and the moderate rise in household income, while structural adjustment pressure, such as the excess debt of firms, has almost dissipated. in light of these increases in demand both at home and abroad, production is also expected to follow an increasing trend. public investment, meanwhile, is projected to remain on a downtrend. on the price front, domestic corporate goods prices have continued to increase, mainly reflecting the rise in international commodity prices and the depreciation of the yen in the second half of last year. the year - on - year rate of change in consumer prices ( excluding fresh food ) has turned slightly positive. domestic corporate goods prices are expected to continue increasing for the time being, mainly due to the effects of the rise in international commodity prices. as for the year - on - year rate of change in consumer prices, a positive trend is projected to be established, as supply - demand conditions continue improving gradually and the effects from the reduction in telephone charges dissipate. as for the financial environment, the environment for corporate finance is becoming more accommodative on the whole. the issuing environment for cp and corporate bonds is favorable. also, the lending attitude of private banks is becoming more accommodative. the lending attitude of financial institutions as perceived by firms has been improving. the pace of decline in credit demand in the private sector is very moderate. under these circumstances, the rate of increase in the amount outstanding of lending by private banks is accelerating, and the amount outstanding of cp and corporate bonds issued has been above the previous year's level. the year - on - year growth rate of the monetary base is 1. 0 percent, and that of

and down with the rba's bond holdings. we have seen some evidence of this at times, with some japanese fixed income investors adjusting the benchmarks they base their australian bond holdings around to take account of rba - owned bonds. in effect, the rba is replacing those japanese investors in the bond market, leading to a lower exchange rate than otherwise. see bank of england ( 2021 ), ‘ ieo evaluation of the bank of england's approach to quantitative easing ’, january. available at < https : / / www. bankofengland. co. uk / independent - evaluation - office / ieo - report - january - 2021 / ieoevaluation - of - the - bank - of - englands - approach - to - quantitative - easing >. the stimulus is sometimes calibrated to the duration of the central bank's bond holdings. if this is the case, then once purchases cease, the duration of the holdings starts to decline, gradually reducing the stimulus in the system. see the february 2021 statement on monetary policy : < https : / / www. rba. gov. au / publications / smp / 2021 / feb / > and r finlay, d titkov and m xiang ( forthcoming ), ‘ an initial assessment of the reserve bank's bond purchase program ’, rba bulletin. it also reflected an increase in inflation compensation, that is, the premium the market wants to be compensated for the risk of higher inflation. the borrowing is against appropriate collateral, generally mortgage - backed securities that banks hold on their balance sheets ( self - securitisations ), and with haircuts to provide adequate protection to the rba. the materials on this webpage are subject to copyright and their use is subject to the terms and conditions set out in the copyright and disclaimer notice. © reserve bank of australia, 2001 – 2021. all rights reserved. the reserve bank of australia acknowledges the aboriginal and torres strait islander peoples of australia as the traditional custodians of this land, and recognises their continuing connection to country. we pay our respects to their elders, past, present and emerging. https : / / www. rba. gov. au / speeches / 2021 / sp - dg - 2021 - 05 - 06. html 26 / 26