economic outlook for overseas economies continues to require attention, given that there are some uncertain factors including geopolitical developments and their economic implications. on the domestic side, stock prices are weak. hence, careful monitoring is required of progress in the resolution of the nonperforming - loan problem and its effects on stock prices, corporate finance, and the economy. on the price front, import prices are on a rising trend with some fluctuations, reflecting developments in overseas commodity prices such as crude oil. domestic corporate goods prices have been declining gradually due to the rise in import prices and the improved supply - demand balance in materials industries, despite the continued fall in machinery prices. consumer prices and corporate services prices have also been declining gradually. looking at the conditions influencing price developments, import prices are projected to be firm for the time being due mainly to developments in crude oil prices. although the low levels of inventories will this report is based on data and information available at the time of the bank of japan monetary policy meeting held on february 13 and 14, 2003. the bank ’ s view of recent economic and financial developments, determined by the policy board at the monetary policy meeting held on february 13 and 14, 2003, as the basis for monetary policy decisions. support prices to some degree, the overall condition of supply and demand is expected to continue exerting downward pressure on prices while domestic demand continues to be weak for a while. moreover, factors such as the ongoing technological innovations in machinery and the streamlining of distribution channels will continue to exert downward pressure on prices. under these circumstances, domestic corporate goods prices are likely to continue a gradual decline for the time being. the pace of year - on - year decline in consumer prices is expected to become somewhat slower. this is because the year - on - year change in prices of petroleum products is expected to become positive, and medical costs are projected to rise from april due to public insurance reforms. as for the financial environment, the outstanding balance of current accounts at the bank of japan is recently moving at around 20 trillion yen, as the bank provides ample liquidity. under these circumstances, in the short - term money markets, the overnight call rate continues to hover at very close to zero percent. moreover, longer - term interest rates continue to be at low levels as a whole. yields on long - term government bonds declined further in late january and are recently moving in the range of 0. 8 - 0. 9 percent. yield spreads between private bonds ( bank

quickly. buying in the secondary market also helps enhance the goc bond market ’ s functioning and liquidity. it gives participants more regular opportunities to trade and see pricing points for off - the - run securities that are less liquid than on - therun bonds. when we do become a regular buyer in these markets again, a couple of key principles will guide us to help ensure that our presence leans toward enhancing market functioning. first and foremost, we want to limit the market impact of our purchase operations. our bond purchase operations, for example, will be pricesensitive, and we won ’ t necessarily buy everything that dealers offer to us. and second, we will always aim to be as transparent and predictable as possible. for example, we will publish calls for tender ahead of our operations, as well as quarterly purchase schedules. so now you know what comes next once we ’ ve finished qt. where do recent repo market pressures fit? before i conclude, let me also take this opportunity to say a few words about the recent pressures in repo markets and how they fit into all this. i want to be clear that we will not be ending qt out of any concern about the functioning of repo markets. our assessment is that, for the most part, other factors are causing these pressures. i also want to be very clear that the pressures in repo markets are not a reflection or indication of broader financial system stress. last year, our analysis determined that upward pressure in repo markets was being caused primarily by positioning in bond and futures markets, largely by - 9hedge funds. 5 through our more recent monitoring and discussions, we can see that hedge fund activity and positioning continue to contribute to higher funding requirements sourced in the repo market. these have led to upward pressure on repo market rates — along with other factors, such as the transition to a one - day settlement period for trades, also known as t + 1 settlement. 6 we ’ ve also seen greater upward pressure on rates in overnight repo markets around regulatory reporting dates, such as at year - end or quarter - end for banks. this happens in many other major jurisdictions as well. 7 repo trading increases the size of a bank ’ s balance sheet and, in turn, its regulatory capital requirements. so as reporting dates approach, banks try to reduce their balance sheet to satisfy regulatory requirements. this tends to make them less willing to conduct repo transactions with clients and cash desks, due to the