active than before in extending loans, while carefully evaluating the credit risks involved. however, credit demand for economic activities such as business fixed investment remains weak. in addition, some firms have recently been repaying their loans using their on - hand liquidity. as a result, credit demand in the private sector has continued to be weak, and thus private banks ’ lending has remained sluggish. furthermore, the pace of issuance of corporate bonds and cp has generally been slowing. money stock ( m2 + cds ) has shown a year - to - year increase of about 4 percent partly due to an increase in fiscal expenditure. in this financial environment, credit conditions have eased somewhat. the following continue to warrant careful monitoring : how actively investors will take risks ; how far private banks will ease their lending stance ; and how these changes will affect economic activities.

wholesale prices are leveling off due to the progress in inventory adjustment as well as an increase in prices of some products closely related to international commodities, such as those of petroleum products. consumer prices continue to be unchanged. corporate service prices are still falling, although the pace of the decline is slowing. for a while, movements of overall prices are likely to be flat, as the decline in this report was written based on data and information available when the bank of japan monetary policy meeting was held on 9 september 1999. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on 9 september as the basis of monetary policy decisions. domestic commodity prices has come to a halt reflecting the rise in import prices to date. however, substantial narrowing in the output gap led by a recovery in private demand is unlikely for the time being, and wages continue to decline. thus, downward pressure on prices is expected to remain. in the financial market, the overnight call rate has stayed at nearly zero and financial institutions have been confident about the availability of overnight funds. as for interest rates on term instruments, short - term rates such as those of three months have weakened. however, longer - term rates maturing beyond the year - end continue to be relatively high partly due to market participants ’ concern over the year 2000 problem. the japan premium has continued to be nearly zero for short - term transactions. yields on long - term government bonds rose to 2 percent in late august, but have recently fallen to 1. 8 - 1. 9 percent. the yield spread between government bonds and private bonds ( bank debentures and corporate bonds ) has stopped narrowing. stock prices recovered the 18, 000 yen level in late august, but subsequently declined against the background of the appreciation of the yen and the weak tone in us stock prices. currently, the prices are around 17, 500 - 18, 000 yen. the yen has appreciated further against the us dollar since mid - august to the current level of around 110 yen. the amount outstanding of funds in the call money market has remained generally stable since the middle of june. to date, this has not led to any difficulty in funds settlement, but close attention should be paid to future market developments. with regard to corporate finance, private banks have basically retained their cautious lending attitude. however, constraint that had been caused by severe fund - raising conditions and insufficient capital base has eased considerably. under these circumstances, major banks have gradually become more