Monthly Report of Recent Economic and Financial Developments 1 July 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 July 14 and 15, 2009.
July 16, 2009
Bank of Japan
Japan's economic conditions have stopped worsening.
Public investment has increased. Exports and production have picked up, after falling substantially. Under these circumstances, business sentiment, especially of large manufacturing firms, has stopped deteriorating. On the other hand, business fixed investment has declined substantially, mainly reflecting weak corporate profits. Private consumption has remained generally weak and housing investment has decreased amid the worsening employment and income situation.
Japan's economic conditions are likely to turn upward over time.
Exports and production are expected to continue recovering, mainly due to progress in inventory adjustments both at home and abroad. Public investment is expected to continue increasing. On the other hand, domestic private demand is likely to remain relatively weak with corporate profits and firms' funding conditions remaining severe and a worsening employment and income situation.
On the price front, the three-month rate of change in domestic corporate goods prices has continued to be slightly below 0 percent, mainly due to the easing of supply and demand conditions for products. The year-on-year rate of change in consumer prices (excluding fresh food) has turned negative, mainly due to the prices of petroleum products lower than the high levels of a year earlier, in addition to the ongoing substantial slack in the overall economy.
Domestic corporate goods prices are likely to continue decreasing gradually for the time being, as supply and demand conditions for products are likely to remain slack. The year-on-year decline in consumer prices is expected to continue accelerating for the time being, mainly due to the prices of petroleum products lower than the high levels of a year earlier.
The weighted average of the overnight call rate has been at around 0.1 percent, and interest rates on term instruments have remained more or less unchanged. Meanwhile, compared with last month, the yen has appreciated against the U.S. dollar, while yields on long-term government bonds and stock prices have declined.
Financial conditions, while remaining generally tight, have continued to show signs of improvement.
The overnight call rate has remained at an extremely low level. Firms' funding costs have further declined due to decreases in issuance rates on CP and corporate bonds and bank lending rates. However, the stimulative effects from low interest rates have been limited given the low level of economic activity and corporate profits. The amount outstanding of bank lending, especially to large firms, has continued to increase at a relatively fast pace, although the pace of increase has slowed. Issuing conditions for CP and corporate bonds have improved further: the decline in issuance of CP has mainly reflected a weakening of firms' demand for additional liquidity and working capital, and an increasing number of firms have been issuing corporate bonds. However, issuance of corporate bonds by firms with low credit ratings has remained subdued. Under these circumstances, although many firms have continued to see their financial positions as weak and lending attitudes of financial institutions as severe, financial conditions in these regards have improved somewhat for both large and small firms. Meanwhile, the year-on-year rate of change in the money stock has been at around 2.5 percent.