oil prices. domestic wholesale prices are levelling 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. as regards the movements of overall prices in the future, they are likely to be flat, this report was written based on data and information available when the bank of japan monetary policy meeting was held on 13 october 1999. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on 13 october as the basis of monetary policy decisions. as the rise in crude oil prices to date will continue to be passed on to prices of other products for a while. 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 maturing before the year - end have been moving at a historically low level. meanwhile, rates maturing beyond the year - end are relatively high due to market participants ’ concern over the year 2000 problem. the japan premium has continued to be nearly zero for short - term transactions, but a small premium has been observed for transactions maturing beyond the year - end. yields on long - term government bonds declined from late august to the level of around 1. 6 percent. they rose somewhat thereafter and have recently been moving between 1. 7 and 1. 8 percent. the yield spread between government bonds and private bonds ( bank debentures and corporate bonds ) has been stable and noticeably smaller than before. stock prices fell below the 17, 000 yen level in late september against the background of the weak tone in u. s. stock prices and the rapid appreciation of the yen, but subsequently rebounded reacting to the recovery in u. s. stock prices and the restoration of stability in the foreign exchange market. the prices are presently moving around 18, 000 yen. in the foreign exchange market, the yen surged against the u. s. dollar and reached the 103 – 104 yen level in the middle of and late september, but then declined to the current level of 106 — 108 yen to

bank of japan ’ s march report of recent economic and financial developments1 bank of japan, 6 march 2003. * the bank ’ s view * * economic activity remains flat amid substantial uncertainty about the outlook for the economy. with regard to final demand, while business fixed investment has been virtually level, private consumption continues to be weak. moreover, housing investment remains sluggish and public investment is declining. while domestic demand has yet to show signs of recovery, both exports and imports are increasing at a very modest pace with net exports remaining virtually level. industrial production continues to be basically level in response to these developments in final demand. as for the employment situation, new job offers are on a gradual rising trend. in addition, the number of employees, which covers various types of employees including non - regular employees such as temporary workers, appears to be declining at a slower pace. however, firms are still maintaining their stance on reducing personnel expenses, and household income continues to decrease significantly due mainly to an ongoing decline in wages. thus, the employment and income situation of households overall remains severe. turning to the economic outlook, a widely shared view of the prospect for overseas economies in 2003 is that, partly due to the continued firmness in asian economies, they will follow a gradual recovery path. however, their recovery is likely to be anemic, at least for the time being, given the sluggish improvement in the u. s. economy and further weakness in european economies. in this situation, the increase in exports is expected to remain very modest, and industrial production is likely to be more or less unchanged for the immediate future. with respect to domestic demand, public investment is projected to follow a declining trend, and private consumption is likely to remain weak for some time due to the severe employment and income situation. business fixed investment is expected to be supported by the improvement in corporate profits to date, but is unlikely to recover clearly for the time being due mainly to substantial uncertainty regarding overseas economies. overall, assuming that overseas economies will recover in 2003, albeit only at a moderate pace, the increase in exports will accelerate and the uptrend in production will resume sooner or later, which in turn will initiate the momentum for a recovery. however, the economy is unlikely to show clear signs of recovery for some time, since production is expected to be virtually unchanged for the time being while downward pressures such as excessive labor input and debt persist. furthermore, the downside risk to the economic outlook for overseas economies continues