in prices of petroleum and chemical products reflecting the increase in crude oil prices to date. meanwhile, consumer prices continue to be somewhat weak owing to the slight decrease in the prices of private - sector services and the decline in prices of imported products reflecting the past appreciation of the yen. corporate service prices are still falling slowly. this report was written based on data and information available when the bank of japan monetary policy meeting was held on july 17, 2000. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on july 17, 2000 as the basis of monetary policy decisions. as for the outlook on prices, downward pressure on prices stemming from weak demand is declining significantly while an economic recovery is expected to continue moderately. upward pressure on prices is likely to arise temporarily from the increase in crude oil prices. on the other hand, in addition to the declining trend of machinery prices due to technological innovations, the decline in prices of consumer goods arising from the past appreciation of the yen and the streamlining of distribution channels will exert downward pressure on prices. thus, prices overall are expected to be stable or weak somewhat. in the financial market, the overnight call rate has generally stayed near zero, and financial institutions have been confident about the availability of overnight funds. the amount of funds outstanding in the call money market has increased slightly. interest rates on term instruments have been increasing from mid - june reflecting a possible termination of the zero interest rate policy. the japan premium remains negligible. yields on long - term government bonds increased somewhat from mid - june and are recently moving around 1. 7 percent. the yield spread between private bonds ( bank debentures and corporate bonds ) and government bonds remains mostly unchanged. stock prices fell towards mid - june, but have recovered thereafter along with the rise in us stocks. in the foreign exchange market, the yen temporarily rose to around 104 yen in late june against the us dollar, but then started to decline. the yen is currently being traded in the range of 107 - 109 yen. 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. given this, major banks are becoming more active in extending loans, while carefully evaluating the credit risks involved. on the other hand, the improvement in economic activities has not stimulated corporate demand for external funds, since firms ’ cash flow is increasing in parallel with

of the cp and bond markets cannot be ruled out. in the event, financial institutions that hold cp and corporate bonds can submit them to the bank for funding. thus the purchases are designed to serve as a safety net to restore the market functioning if the cp and corporate bond markets should become unstable. these are the policy measures that the bank has taken and the thinking behind their introduction. the bank, paying attention for the time being to the downside risks to economic activity and prices, will continue to exert its utmost efforts as the central bank, utilizing these tools, to facilitate the return of japan's economy to a sustainable growth path with price stability. closing remarks i have discussed the current financial and economic conditions in japan and abroad as well as the outlook, and our thinking regarding the conduct of monetary policy. if i may summarize what i have explained earlier, the sharp deterioration in economic and financial conditions in japan and abroad since last autumn is starting to level out and there is a prospect of a mild recovery ahead. however, considering the fact that the current economic downturn has occurred during the process of the adjustment of various excesses that had accumulated worldwide over the past several years, it is very likely that the severe economic conditions will continue for some time, and the recovery thereafter will inevitably be mild and attended by high uncertainty. under these circumstances, policymakers around the globe, including the bank, have been taking a variety of actions. these actions are playing an important role in temporarily mitigating the negative effects of economic and financial shocks and preventing the economy from sinking even further. the future path of the economy after recovering from the shocks will reflect the true strength inherent in the economy, that is, the potential growth rate. the major factor determining the potential growth rate is growth in productivity. japan's economy cannot be expected to prosper without improving its productivity through innovation. fiscal and monetary policies are important, but they merely assume a supporting role in facilitating adjustments of excesses and proactive efforts by the private sector. needless to say, making the most of the market mechanism is a prerequisite in order to realize innovation. nevertheless, distrust in the market mechanism seems to be increasing, due to the emergence of the global financial crisis and to the fact that excess financial activity was one of the major factors behind the crisis. in the area of financial activity, appropriate regulation and supervision are prerequisites for the financial markets and financial institutions to properly fulfill their role of financial intermedia