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Home > Monetary Policy > Monthly Report of Recent Economic and Financial Developments 2010 > Monthly Report of Recent Economic and Financial Developments August 2010 (Summary)
(English translation prepared by the Bank's staff based on the Japanese original)
August 11, 2010
Bank of Japan
Japan's economy shows further signs of a moderate recovery, induced by improvement in overseas economic conditions.
Exports and production have been increasing. Business fixed investment is showing signs of picking up. The employment and income situation has remained severe, but the degree of severity has eased somewhat. In these circumstances, private consumption has been generally picking up. Housing investment has leveled out. Meanwhile, public investment is declining.
Japan's economy is likely to recover at a moderate pace.
The uptrend in exports and production is expected to continue, reflecting continued improvement in overseas economic conditions, although the pace of increase is likely to moderate. Domestic private demand is expected to continue improving, but the pace of improvement is likely to remain moderate for the time being, amid the persistent sense among firms of excessive capital stock and employment as well as the waning effects of policy measures. Meanwhile, the decline in public investment is likely to continue.
On the price front, the three-month rate of increase in domestic corporate goods prices is slowing, mainly due to the decrease in commodity prices, amid the persistent slack in supply and demand conditions for products. Consumer prices (excluding fresh food) are declining on a year-on-year basis due to the substantial slack in the economy as a whole, but the slowing trend in the pace of decline has continued.
Domestic corporate goods prices are expected to be somewhat weak for the time being, since the effects of the decrease in commodity prices are likely to continue. The year-on-year pace of decline in consumer prices is expected to slow as a trend as the aggregate supply and demand balance improves gradually.
The weighted average of the overnight call rate has been at around 0.1 percent, and interest rates on term instruments have been more or less unchanged. Compared with last month, the yen has appreciated against the U.S. dollar, while long-term interest rates have declined. Meanwhile, stock prices have remained at more or less the same level as last month.
Financial conditions have continued to show signs of easing.
The overnight call rate has remained at an extremely low level, and the declining trend in firms' funding costs has continued. While stimulative effects from low interest rates are still partly constrained given current developments in economic activity and prices, such effects are beginning to strengthen in light of improved corporate profits. With regard to credit supply, firms see financial institutions' lending attitudes as improving. Issuing conditions for CP and corporate bonds have remained favorable. As for credit demand, firms' need to fund working capital and fixed investment has declined, and some firms have reduced the on-hand liquidity that they had accumulated. Against this backdrop, bank lending has declined on a year-on-year basis. The amount outstanding of corporate bonds has exceeded the previous year's level, while that of CP has declined. In these circumstances, the financial positions of firms have continued to show signs of improvement as a whole. Meanwhile, the year-on-year rate of change in the money stock has been in the range of 2.5-3.0 percent.