Monthly Report of Recent Economic and Financial Developments November 2004 1(The Bank's View 2)
(English translation prepared by the Bank's staff based on the Japanese original)
- This report is based on data and information available at the time of the Bank of Japan Monetary Policy Meeting held on November 17 and 18, 2004.
- The text of"The Bank's View" was decided by the Policy Board at the Monetary Policy Meeting held on November 17 and 18, 2004.
November 18, 2004
Bank of Japan
Japan's economy continues to recover as a whole, although the increase in exports and production seems to be coming to a pause.
While the increase in exports and industrial production seems to be coming to a pause, business fixed investment has been increasing, albeit recently at a mild pace, with corporate profits improving. The employment situation has been on an improving trend and household income has stopped declining. In this situation, private consumption has been steady. Meanwhile, housing investment has been nearly flat, and public investment has been declining.
Japan's economy is expected to continue to recover.
Exports and production are expected to follow an uptrend, as it is projected that overseas economies will continue to expand and domestic demand will also continue to increase. Structural adjustment pressure stemming from firms' excess capacity and debt has been easing. While firms are likely to continue restraining labor costs, household income is expected to show signs of a gradual increase since corporate profits are increasing and the extent of excess labor perceived by firms is continuing to ease. Public investment, meanwhile, is projected to be on a downtrend.
Developments in IT-related demand and crude oil prices, and their impact on the domestic as well as overseas economies should continue to be noted.
On the price front, domestic corporate goods prices have been rising, due to the strengthening of commodity prices at home and abroad and to the improvement in supply and demand conditions. Consumer prices (excluding fresh food) have been on a slightly declining trend on a year-on-year basis.
Domestic corporate goods prices are expected to continue increasing for some time, partly due to the rise in crude oil prices. On the other hand, supply and demand conditions are likely to remain loose for the time being, although they are improving. Under these circumstances, consumer prices are projected to basically continue falling slightly on a year-on-year basis.
As for the financial environment, the environment for corporate finance is becoming more accommodative on the whole, although it remains severe for firms with high credit risks. The issuing environment for CP and corporate bonds is favorable on the whole. Also, the lending attitude of private banks is becoming more accommodative. The lending attitude of financial institutions as perceived by firms has been improving. The pace of decline in credit demand in the private sector is becoming somewhat moderate. Under these circumstances, the amount outstanding of CP and corporate bonds issued continues to be above the previous year's level, and the rate of decline in lending by private banks has basically been diminishing. Meanwhile, the year-on-year growth rate of the monetary base has been at the 4.0-5.0 percent level. The year-on-year growth rate of the money stock is around 2.0 percent. The growth of banknotes in circulation had remained low compared to some time ago, mainly due to decreasing anxieties about the financial system, but it has been increasing slightly since the beginning of November due to the introduction of the new series of banknotes. As for developments in financial markets, money market conditions continue to be extremely easy, as the Bank of Japan continues to provide ample liquidity. In the foreign exchange and capital markets, the yen's exchange rate against the U.S. dollar has risen compared with last month, while long-term interest rates and stock prices have been around the same level as last month.