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Monthly Report of Recent Economic and Financial Developments 1 August 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 August 18 and 19, 2008.

August 20, 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 been leveling off, as corporate profits have been decreasing 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 petroleum products and food. The recovery in housing investment has been stalled. 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 level out 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 decrease 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 been high, mainly due to the rise in international commodity prices. The year-on-year rate of increase in consumer prices (excluding fresh food) is currently around 2 percent against the background of the increase in prices of petroleum products and food.

Domestic corporate goods prices are likely to continue increasing for the time being, with the effects of the rise in international commodity prices remaining, but the pace of increase is likely to slow. The year-on-year rate of increase in consumer prices is expected to be somewhat higher 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 around 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 have deteriorated somewhat. Meanwhile, the year-on-year rate of change in the money stock is around 2 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, long-term interest rates have fallen and the yen has depreciated against the U.S. dollar compared with last month. Meanwhile, stock prices have been around the same level as last month.