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Monthly Report of Recent Economic and Financial Developments 1 February 2007 (The Bank's View 2)

(English translation prepared by the Bank's staff based on the Japanese original)

  1. This report is based on data and information available at the time of the Bank of Japan Monetary Policy Meeting held on February 20 and 21, 2007.
  2. The text of"The Bank's View" was decided by the Policy Board at the Monetary Policy Meeting held on February 20 and 21, 2007.

February 21, 2007
Bank of Japan

Japan's economy is expanding moderately.

Public investment has been declining as a trend, although it has recently increased slightly. Meanwhile, exports have continued to increase, and business fixed investment has also continued to increase against the background of high corporate profits. Household income has continued rising moderately, and in this situation, private consumption has been firm. Housing investment has been increasing moderately with some fluctuations. With the rise in demand both at home and abroad, production has also been increasing.

Japan's economy is expected to continue expanding moderately.

Exports are expected to continue rising against the background of the expansion of overseas economies. Domestic private demand is likely to continue increasing against the background of high corporate profits and the moderate rise in household income. In light of these increases in demand both at home and abroad, production is also expected to follow an increasing trend. Public investment, meanwhile, is projected to remain on a downtrend.

On the price front, domestic corporate goods prices have recently been somewhat lower than their levels of three months earlier, due to the drop in international commodity prices. Consumer prices (excluding fresh food) have been registering small increases on a year-on-year basis.

Domestic corporate goods prices are expected to be somewhat weak in the immediate future, due to the drop in international commodity prices. The year-on-year rate of change in consumer prices may be around zero in the short run, mainly due to the drop in crude oil prices. From a longer-term perspective, however, it is projected to continue to follow a positive trend, as the output gap continues to be positive.

As for the financial environment, the environment for corporate finance is accommodative. The issuing environment for CP and corporate bonds is favorable. Also, the lending attitudes of private banks have continued to be accommodative. Credit demand in the private sector has been increasing. Under these circumstances, the amount outstanding of lending by private banks has been increasing. The amount outstanding of CP and corporate bonds issued is slightly below the previous year's level. Funding costs for firms have risen slightly. Meanwhile, the year-on-year rate of change in the money stock is around 1.0 percent. As for developments in financial markets, in the money markets, the overnight call rate has been at around 0.25 percent, and interest rates on term instruments have been around the same level as last month. In the foreign exchange and capital markets, the yen's exchange rate against the U.S. dollar and stock prices have risen compared with last month, while long-term interest rates have been around the same level as last month.