Monthly Report of Recent Economic and Financial Developments 1 July 2007 (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 July 11 and 12, 2007.
- The text of"The Bank's View" was decided by the Policy Board at the Monetary Policy Meeting held on July 11 and 12, 2007.
July 12, 2007
Bank of Japan
Japan's economy is expanding moderately.
Public investment has been declining as a trend, although it has been flat lately. Meanwhile, exports have continued to increase, and business fixed investment has also continued to increase against the background of high corporate profits and generally favorable business sentiment. Household income has continued rising moderately, and in this situation, private consumption has been firm. Housing investment has been more or less flat. With the rise in demand both at home and abroad, production has continued to be on an increasing trend, although it has been flat most recently.
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, the three-month rate of change in domestic corporate goods prices has been positive, mainly due to the rise in international commodity prices. The year-on-year rate of change in consumer prices (excluding fresh food) has been around zero percent.
Domestic corporate goods prices are expected to continue increasing in the immediate future, primarily reflecting the rise in international commodity prices. The year-on-year rate of change in consumer prices is expected to be around zero percent in the short run. 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 moderately. The amount outstanding of CP and corporate bonds issued has been above 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 in the range of 1.0-2.0 percent. As for developments in financial markets, in the money markets, the overnight call rate has been at around 0.5 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, long-term interest rates, and stock prices have been around the same level as last month.
Japan's economy is expected to evolve broadly in line with the outlook presented in theOutlook for Economic Activity and Prices (the Outlook Report) released in April. As for prices, the rate of increase in domestic corporate goods prices in fiscal 2007 is expected to turn out higher than the projection in the Outlook Report, mainly due to the rise in international commodity prices, while the projection for fiscal 2008 remains broadly the same. Meanwhile, consumer prices in both fiscal 2007 and 2008 are expected to evolve broadly in line with the projection in the Outlook Report.