Monthly Report of Recent Economic and Financial Developments 1 November 2010 (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 November 4 and 5, 2010.
November 8, 2010
Bank of Japan
Japan's economy still shows signs of a moderate recovery, but the recovery seems to be pausing.
Exports and production have recently been more or less flat. 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. As for private consumption, there has been a decline in some goods following the sharp increase in demand. Housing investment has leveled out. Meanwhile, public investment is declining.
Japan's economy is likely to grow at a slower pace for some time, but is expected to return to a moderate recovery path thereafter.
Exports are likely to be more or less flat for the time being, but they are expected to increase moderately again, reflecting the improvement in overseas economic conditions. Private consumption is expected to pick up again as the decline following the sharp increase in demand becomes less pronounced. Meanwhile, signs of picking up in business fixed investment are expected to gradually become more evident as the improvement in corporate profits continues. However, with firms' persistent sense of excessive capital stock, the pace of improvement in business fixed investment is likely to remain moderate. In these circumstances, production is expected to increase, after showing temporary weakness primarily in durable consumer goods.
On the price front, domestic corporate goods prices have been lower than three months earlier, mainly due to the slack in supply and demand conditions for products and the appreciation of the yen, but the pace of decline has moderated reflecting movements in international commodity prices. 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 on a moderate uptrend for the time being, mainly due to the uptick in international commodity prices, although the effects of the yen's appreciation to date are likely to remain. 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 generally been slightly below the 0.1 percent level. Interest rates on term instruments have declined somewhat. Meanwhile, compared with last month, the value of the yen against the U.S. dollar has risen, while long-term interest rates and stock prices have remained at more or less the same levels.
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.