bank of japan ’ s september report of recent economic and financial developments bank of japan communication, 11 / 9 / 98. the bank ’ s view japan ’ s economic conditions continue to deteriorate. with respect to final demand, public investment seems to have bottomed out. net exports ( exports minus imports ) are increasing mainly due to a decline in imports. however, business fixed investment has been decreasing significantly, and housing investment has declined further. private consumption has not yet shown a recovery despite the special income tax reduction. against this background of weak final demand, production has been reduced substantially. as a result, some industries have shown improvements in inventory adjustments, but the level of inventories is still high as a whole. with the decline in expenditure and production, corporate profits continue to decrease, and the decline of employee income is accelerating somewhat. in addition, the ratio of job offers to applications records a historically low level, and the unemployment rate remains at a high level. as a whole, the employment and income conditions have deteriorated further. as the above indicates, there are continued negative interactions of production, income, and expenditure. given the current considerably low level of economic activities, the economy is unlikely to transit immediately to a self - sustained recovery led by private demand, although a further deterioration in the economy is expected to cease gradually from the effects of the comprehensive economic stimulus package. additionally, attention should be paid to possible negative effects on the real economy from financial developments including the recent fall in stock prices. in these circumstances, the cabinet approved a guideline on budget requests by ministries for fiscal 1999. this guideline intends to stimulate the economy by allocating ¥4 trillion to the special budgetary provision on the condition that the fiscal structural reform act is suspended. in addition, the bills to rebuild the stability of the financial system are being deliberated at the diet, and the reduction exceeding ¥6 trillion in personal income taxes and corporate taxes is expected to be discussed in detail. the materialization of these policies along with their effects on corporate and household sentiment should be carefully monitored. with regard to prices, wholesale prices are on a downtrend, and consumer prices are lowering below the previous year ’ s level. with respect to the outlook, the downward pressure from domestic factors is unlikely to weaken considerably reflecting the already large output gap, despite the expected effects of the comprehensive economic stimulus package. hence, prices are likely to be weak for some time. in the financial markets, stock prices dropped considerably in late august

to exploit economies of scale, and suffer from limited attractiveness to investors - 3 ". hence, there are no doubts that intraregional economic cooperation can serve as a catalyst for lifting the growth potential of the region. according to some estimates, it can potentially add up to 10 % to the wb6 economies4. the common regional market is also a critical stepping - stone to the eu's single market. 1 / 4 bis - central bankers'speeches stronger trade and financial integration must be underpinned by efficient payments system. lowering the time and costs of payment transactions can lift trade volumes, enhance financial flows and support foreign direct inflows that are inevitable for addressing the structural bottlenecks in the region. although it is acknowledged that the wb region has made immense progress in the payments system area, yet gaps remain and need to be closed. to address these gaps, the world bank, in collaboration with the regional cooperation council and central european free trade agreement secretariat, embarked on western balkans payments modernization project, sponsored by the european commission. two main pillars of the project are sepa accession and integration of the region with the ecb's target instant payment settlement ( tips ) system. let me now elaborate more on the expected benefits from joining sepa. the accession to the single payment area holds immense significance for all stakeholders in our economy. for financial institutions, joining sepa before becoming eu member, means indirect access to european payment systems, eliminating the need for complex and costly correspondent banking arrangements. this simplification will lead to more efficient, cost - effective, and faster cross - border payments. for businesses, sepa provides a gateway to improved access to the eu market. with standardized and streamlined payment processes, companies can engage in cross - border trade with greater ease, fostering economic growth and regional integration. the world bank analysis for the costs of euro cross - border payments for micro, small, and medium - sized enterprises in the western balkans reveals that it costs approximately 12 times more to transfer €5, 000 and 15 times more to transfer €20, 000 from the eu to the wb6 than among the eu countries. for citizens, sepa membership translates to a more affordable, convenient, and secure method for conducting euro transactions. individuals will benefit from reduced fees on cross - border payments, including for remittances. " it has the potential to reduce the cost of remittances to the western balkan economies, which currently amount to 6. 71 percent of the