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Monthly Report of Recent Economic and Financial Developments 1 September 2008 (Summary)

(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 September 16 and 17, 2008.

September 18, 2008
Bank of Japan

Japan's economic growth has been sluggish against the backdrop of high energy and materials prices and weaker growth in exports.

The pace of increase in exports has slowed.  Business fixed investment has declined somewhat lately, as corporate profits have decreased mainly due to the deterioration in the terms of trade.  Private consumption has been relatively weak, mainly due to sluggish growth in household income and the increase in prices of energy and food.  Housing investment has been more or less flat.  Public investment, meanwhile, has been sluggish.  With these developments in demand both at home and abroad, production has been relatively weak. 

While growth will likely remain sluggish for the time being, Japan's economy is expected to gradually return onto a moderate growth path as international commodity prices stabilize and overseas economies move out of their deceleration phase.

Growth in exports is expected to remain only modest for the time being, due to the slowdown in overseas economies.  Growth in domestic private demand is likely to be sluggish for the time being, as corporate profits are expected to continue decreasing and real household income is likely to remain relatively weak.  Public investment, meanwhile, is projected to be on a downtrend.  In light of these developments in demand, production is expected to remain relatively weak for the time being.

On the price front, the three month rate of increase in domestic corporate goods prices has declined somewhat, due to the setback in international commodity prices.  The year-on-year rate of increase in consumer prices (excluding fresh food) is currently around 2.5 percent against the background of the increase in prices of energy and food.

The pace of increase in domestic corporate goods prices is expected to slow for the time being, mainly due to the setback in international commodity prices.  The year-on-year rate of increase in consumer prices is expected to remain at around the current level over the coming months but to moderate gradually thereafter, reflecting developments in prices of energy and food.

As for the financial environment, the environment for corporate finance is accommodative on the whole.  Credit demand in the private sector has been increasing moderately.  Issuing conditions for CP and corporate bonds have been favorable as a whole, although they have tightened for firms with low credit ratings and in some industries.  Lending attitudes of private banks have continued to be generally accommodative.  The amount outstanding of lending by private banks, notably of lending to large firms, has been increasing, although that of lending to small and medium-sized firms has been below the previous year's level.  The amount outstanding of CP and corporate bonds issued has been above the previous year's level.  Funding costs for firms have remained more or less unchanged.  The financial positions of firms have continued to be favorable as a whole, but those of small and medium-sized firms and of firms in some industries have deteriorated.  Meanwhile, the year-on-year rate of change in the money stock is in the range of 2-3 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, against the backdrop of the recent developments among U.S. financial institutions, the yen has appreciated against the U.S. dollar and stock prices have fallen compared with last month.  Meanwhile, long-term interest rates have been around the same level as last month.