Monthly Report of Recent Economic and Financial Developments 1 February 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 February 18 and 19, 2009.
February 20, 2009
Bank of Japan
Japan's economic conditions have deteriorated significantly.
Exports have decreased substantially. Corporate profits have deteriorated at a faster pace, and business fixed investment has declined substantially. Private consumption has weakened, as the employment and income situation has become increasingly severe. As for housing investment, the number of housing starts has begun decreasing again. Public investment, meanwhile, has been sluggish. Reflecting these developments in demand both at home and abroad, production has decreased at a much faster pace.
Japan's economic conditions are likely to continue deteriorating for the time being.
Exports are expected to continue to decrease due to the slowdown in overseas economies and the appreciation of the yen. Domestic private demand is also likely to weaken further as corporate profits and firms' funding conditions deteriorate and the employment and income situation becomes increasingly severe. Public investment, meanwhile, is projected to be sluggish. Reflecting these developments in demand and growing adjustment pressures on inventories, production is expected to continue to decrease.
On the price front, the three-month rate of decrease in domestic corporate goods prices has been large, mainly due to the drop in international commodity prices. The year-on-year rate of increase in consumer prices (excluding fresh food) has moderated to around 0 percent, mainly reflecting the declines in the prices of petroleum products and the stabilization of food prices.
Domestic corporate goods prices are likely to continue decreasing for the time being, mainly due to the drop in international commodity prices and the easing of supply-demand conditions for products. The year-on-year rate of increase in consumer prices is expected to become negative, mainly due to the declines in the prices of petroleum products and the stabilization of food prices and also to increasing slackness in supply and demand conditions in the overall economy.
In money markets, the weighted average of the overnight call rate has been at around 0.1 percent. JGB repo market rates, however, have tended to fluctuate, and interbank rates on term instruments have remained at high levels. Meanwhile, the yen's exchange rate against the U.S. dollar has depreciated and stock prices have fallen compared with last month. Yields on long-term government bonds have been around the same level as last month.
Financial conditions in Japan have remained tight.
The overnight call rate has been at an extremely low level, but the stimulative effects from this have become increasingly limited given the significant deterioration in economic activity. It seems that funding costs have declined compared to the levels at around the end of last year, mainly reflecting the reductions in the policy interest rate, although credit spreads on corporate debt have generally remained wide. In response to various policy measures, some firms have increased issuance of CP, and the amount outstanding of bank lending, especially to large firms, has continued to increase rapidly. However, the amount outstanding of CP and corporate bonds issued by firms with low credit ratings has been below the previous year's level, and an increasing number of firms, especially small firms, have reported that their financial positions are weak and lending attitudes of financial institutions are severe. Meanwhile, the year-on-year rate of change in the money stock has been around 2 percent.