time being while downward pressures such as excessive labor input and debt persist. as to the outlook for the environment for exports, there is greater uncertainty about the effects of sars within the east asian region, whose economies are closely linked to japan ’ s, as well as uncertainty regarding the recovery in the u. s. and european economies and the developments in the u. s. dollar. on the domestic side, how the developments in the financial system will affect stock prices, corporate finance, and the economy requires careful monitoring. on the price front, import prices are still increasing somewhat, reflecting the rise in crude oil prices until early spring. domestic corporate goods prices have stopped declining on the whole with the rise in import prices and the improved supply - demand balance in materials industries, despite the continued fall in machinery prices. meanwhile, consumer prices and corporate services prices have been declining gradually. looking at the conditions influencing price developments, import prices are expected to start declining, in reaction to the fall in crude oil prices since early spring. on the domestic side, the supply - demand balance in the macroeconomy, ongoing technological innovations in machinery, and the streamlining this report is based on data and information available at the time of the bank of japan monetary policy meeting held on may 19 and 20, 2003. the bank ’ s view of recent economic and financial developments, determined by the policy board at the monetary policy meeting held on may 19 and 20, 2003 as the basis for monetary policy decisions. of distribution channels will continue to exert downward pressure on prices. in addition, the improvement in the supply - demand situation in materials industries has recently come to a halt. based on these factors, domestic corporate goods prices are projected to return to a gradual decline. meanwhile, the pace of year - on - year decline in consumer prices is projected to slow somewhat in april with the rise in medical costs due to public insurance reforms. the year - on - year decline in consumer prices thereafter is projected to remain around the april level. while the rise in prices of petroleum products is expected to peak out, the import of consumer goods, which is strongly related to low - price strategies, is not increasing as it once was. as for the financial environment, the outstanding balance of current accounts at the bank of japan moved in the range of 25 - 30 trillion yen during april, as the bank provided more ample liquidity to secure financial market stability. since the beginning of may, the bank has been providing more ample liquidity

in accordance with the guideline for money market operations decided at the monetary policy meeting held on april 30. the outstanding balance of current accounts is recently moving at around 25 - 27 trillion yen. under these circumstances, the overnight call rate continues to hover at very close to zero percent. longer - term interest rates remain steady at low levels. yields on long - term government bonds declined and were temporarily moving at the 0. 5 - 0. 6 percent level, as banks and institutional investors have further increased investment in government bonds since the start of the new fiscal year. yield spreads between private bonds ( bank bonds and corporate bonds ) and government bonds are contracting further due mainly to the increase in corporate bond investment by institutional investors. stock prices plunged temporarily toward the end of april reflecting uncertainty regarding the domestic economic outlook and concern over the worsening supply - demand situation in the stock market, but they have since recovered following the recovery in european and u. s. stock prices. the nikkei 225 stock average is recently moving at around 8, 000 yen. in the foreign exchange market, the yen appreciated reflecting the ongoing weakness of the u. s. dollar due mainly to concern about increasing fiscal deficits and current account deficits in the united states. the yen is currently traded in the range of 115 - 118 yen to the u. s. dollar. with regard to corporate finance, private banks remain cautious in extending loans to firms with high credit risks while they continue to be more active in extending loans to blue - chip companies. recently, their lending attitudes seem to be becoming slightly more accommodative in areas such as interest margin charges. meanwhile, the lending attitudes of financial institutions as perceived by firms, particularly small ones, remain severe. in the corporate bond and cp markets, the issuing environment for firms with high credit ratings continues to be accommodative, and the environment for firms with relatively low credit ratings seems to be improving slightly. credit demand in the private sector continues to follow a downtrend mainly because business fixed investment is at low levels and firms are continuously reducing their debts. amid these developments, private banks ’ lending continues to decline by about 2 - 3 percent on a yearon - year basis, but the rate of decline is contracting slightly. the amount outstanding of corporate bonds and cp issued is moving at around the previous year ’ s level. meanwhile, according to business surveys, financial positions of firms, particularly those of small firms, remain severe. the year - on -