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Monthly Report of Recent Economic and Financial Developments 1 June 2007 (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 June 14 and 15, 2007.
  2. The text of"The Bank's View" was decided by the Policy Board at the Monetary Policy Meeting held on June 14 and 15, 2007.

June 15, 2007
Bank of Japan

Japan's economy is expanding moderately.

Public investment has been declining as a trend, although it has recently been flat. Meanwhile, exports have continued to increase, and business fixed investment has also continued to increase against the background of high corporate profits. Household income has continued rising moderately, and in this situation, private consumption has been firm. Housing investment has been increasing moderately with some fluctuations. With the rise in demand both at home and abroad, production has also been on an increasing trend.

Japan's economy is expected to continue expanding moderately.

Exports are expected to continue rising against the background of the expansion of overseas economies. Domestic private demand is likely to continue increasing against the background of high corporate profits and the moderate rise in household income. In light of these increases in demand both at home and abroad, production is also expected to follow an increasing trend. Public investment, meanwhile, is projected to remain on a downtrend.

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 change in consumer prices (excluding fresh food) has been around zero percent, due to earlier declines in crude oil prices.

Domestic corporate goods prices are expected to continue increasing in the immediate future, primarily reflecting the rise in international commodity prices. The year-on-year rate of change in consumer prices is expected to be around zero percent in the short run, with the effects of the drop in crude oil prices remaining. From a longer-term perspective, however, it is projected to continue to follow a positive trend, as the output gap continues to be positive.

As for the financial environment, the environment for corporate finance is accommodative. The issuing environment for CP and corporate bonds is favorable. Also, the lending attitudes of private banks have continued to be accommodative. Credit demand in the private sector has been increasing. Under these circumstances, the amount outstanding of lending by private banks has been increasing. The amount outstanding of CP and corporate bonds issued is somewhat above the previous year's level. Funding costs for firms have risen slightly. Meanwhile, the year-on-year rate of change in the money stock is in the range of 1.0-2.0 percent. As for developments in financial markets, in the money markets, the overnight call rate has been at around 0.5 percent. Interest rates on term instruments have risen compared with last month. In the foreign exchange and capital markets, long-term interest rates have risen compared with last month, while the yen's exchange rate against the U.S. dollar has fallen compared with last month. Stock prices have been around the same level as last month.