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Monthly Report of Recent Economic and Financial Developments 1 May 2008 (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 May 19 and 20, 2008.
  2. The text of"The Bank's View" was decided by the Policy Board at the Monetary Policy Meeting held on May 19 and 20, 2008.

May 20, 2008
Bank of Japan

Japan's economic growth is slowing, mainly due to the effects of high energy and materials prices.

Exports have continued to increase.  Corporate profits have been leveling off, albeit at a high level, and the pace of increase in business fixed investment has become slower.  Private consumption has been firm in a situation where household income has continued rising moderately.  On the other hand, public investment has been sluggish.  Meanwhile, housing investment has been recovering moderately.  With these developments in demand both at home and abroad, production has been more or less flat.

Japan's economy is expected to grow at a slower pace for the time being and follow a moderate growth path thereafter.

Exports are expected to continue rising, as overseas economies are likely to expand although at a slower pace.  Business fixed investment and private consumption are likely to remain firm against the background of generally high, but slightly reduced, corporate profits and the moderate rise in household income.  Housing investment is expected to be on a recovery trend, although the pace of recovery is likely to be modest.  In light of these developments in demand both at home and abroad, production is expected to increase, after being more or less flat in the short run.  Public investment, meanwhile, is projected to be on a downtrend.  Due attention should continue to be paid to factors such as uncertainties regarding future developments in overseas economies and global financial markets, as well as the effects of high energy and materials prices.

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 increase in consumer prices (excluding fresh food) has been rising since around the end of last year, due to the increase in prices of petroleum products and food products, and it has been around 1 percent lately.

Domestic corporate goods prices are likely to continue increasing for the time being, primarily reflecting the rise in international commodity prices.  The year-on-year rate of change in consumer prices is projected to continue to be positive due to the rise in prices of petroleum products and food products in a situation where overall supply and demand in the economy are more or less balanced.

As for the financial environment, the environment for corporate finance is accommodative.  Credit demand in the private sector has been more or less flat.  The issuing environment for CP and corporate bonds has been favorable as a whole, although issuance spreads on those issued by firms with low credit ratings have expanded.  Lending attitudes of private banks have continued to be generally accommodative.  Under these circumstances, the amount outstanding of lending by private banks has been increasing moderately, and the amount outstanding of CP and corporate bonds issued has been above the previous year's level.  Funding costs for firms have been more or less unchanged.  The financial positions of firms have continued to be favorable as a whole, although those of small and medium firms have somewhat deteriorated.  Meanwhile, the year-on-year rate of change in the money stock is around 2 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, long-term interest rates and stock prices have risen compared with last month, while the yen has depreciated against the U.S. dollar compared with last month.