Monthly Report of Recent Economic and Financial Developments 1 October 2009 (Summary)
(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 October 13 and 14, 2009.
October 15, 2009
Bank of Japan
Japan's economy has started to pick up.
Public investment has been increasing, and exports and production have also been rising. In these circumstances, business sentiment, especially of large manufacturing firms, has shown some improvement. The decline in business fixed investment, which mainly reflects weak corporate profits, has been moderating. Meanwhile, private consumption has remained generally weak and housing investment has decreased amid the severe employment and income situation.
Japan's economic conditions are likely to improve gradually.
Exports and production are expected to continue increasing, mainly reflecting continued improvement in overseas economic conditions. Public investment is also expected to continue increasing for the time being. On the other hand, with the exception of durable goods consumption, which is expected to remain firm for the time being mainly due to the effects of various measures, domestic private demand as a whole is likely to remain relatively weak with corporate profits and the employment and income situation remaining severe.
On the price front, although there has been persistent slack in supply and demand conditions for products, the three-month rate of change in domestic corporate goods prices has been around 0 percent due to the past rise in international commodity prices. The year-on-year decline in consumer prices (excluding fresh food) has accelerated mainly due to the prices of petroleum products, which are lower than their high levels a year ago, in addition to the substantial slack persisting in the economy as a whole.
Domestic corporate goods prices are likely to remain more or less unchanged for the time being. The pace of decline in consumer prices is expected to stabilize at around the current level of the year-on-year rate, and moderate over time as the effects of the prices of petroleum products, which are lower than their high levels a year ago, abate.
The weighted average of the overnight call rate has been at around 0.1 percent, and interest rates on term instruments have remained more or less unchanged. Meanwhile, the yen's exchange rate against the U.S. dollar, long-term interest rates, and stock prices have remained at more or less the same level as last month.
The financial environment, with some lingering severity, is increasingly showing signs of improvement.
The overnight call rate has remained at an extremely low level, and firms' funding costs have remained more or less unchanged at low levels. However, the stimulative effects from low interest rates have been limited given the low level of economic activity and corporate profits. With regard to credit supply, although many firms still see financial institutions' lending attitudes as severe, firms as a whole regard the situation as improving. Issuing conditions for CP and corporate bonds have been favorable, except for low-rated corporate bonds. As for credit demand, firms' needs to fund working capital and fixed investment have declined, and some firms have reduced the on-hand liquidity that they had accumulated. Against such a backdrop, the pace of increase in bank lending has slowed. Issuance of corporate bonds has been at a high level, while that of CP has declined. In these circumstances, firms' financial positions, although many firms, mainly small ones, still see them as weak, have continued to improve as a whole. Meanwhile, the year-on-year rate of change in the money stock has been at around 3.0 percent.