Monthly Report of Recent Economic and Financial Developments 1 September 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 September 16 and 17, 2009.
September 18, 2009
Bank of Japan
Japan's economic conditions are showing signs of recovery.
Public investment has continued to increase, and exports and production have also risen. On the other hand, business fixed investment has continued to decline, mainly reflecting weak corporate profits. Private consumption has remained relatively weak as a whole and housing investment has decreased amid the worsening employment and income situation.
Japan's economic conditions are likely to start improving in the near future.
Exports and production are expected to continue increasing, mainly reflecting continued improvement in overseas economic conditions. Public investment is also expected to continue increasing. On the other hand, with the exception of durable goods consumption, which is expected to remain firm for the time being mainly due to the effects of various measures, domestic private demand as a whole 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, although slack in supply and demand conditions for products has persisted, the three-month rate of change in domestic corporate goods prices has been around 0 percent due to a rise in international commodity prices. The year-on-year decline in consumer prices (excluding fresh food) has accelerated mainly due to the prices of petroleum products, which are lower than their high levels a year ago, in addition to the substantial slack persisting in the economy as a whole.
Domestic corporate goods prices are likely to remain more or less unchanged for the time being. The year-on-year decline in consumer prices, after accelerating somewhat, is expected to moderate over time as the effects of the prices of petroleum products, which are lower than their high levels a year ago, abate.
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. Compared with last month, the yen has appreciated against the U.S. dollar, while yields on long-term government bonds have declined. Meanwhile, stock prices have remained at more or less the same level as last month.
Financial conditions, with some severity lingering, are increasingly showing signs of improvement.
The overnight call rate has remained at an extremely low level, and firms' funding costs have remained more or less unchanged at low levels. However, the stimulative effects from low interest rates have been limited given the low level of economic activity and corporate profits. With regard to credit supply, although many firms still see financial institutions' lending attitudes as severe, firms as a whole regard the situation as improving somewhat. Issuing conditions for CP and corporate bonds have continued to improve, as reflected in the narrowing of credit spreads and the increased number of firms issuing corporate bonds. However, firms with low credit ratings have continued to face severe conditions for issuing bonds. As for credit demand, firms' demand for working capital and funds for fixed investment has declined, and some firms have reduced on-hand liquidity that they had accumulated. Against such a backdrop, the pace of increase in bank lending has slowed. Issuance of corporate bonds has been at a high level, while that of CP has declined. In these circumstances, firms' financial positions, although many firms, mainly small ones, still see them as weak, have continued to improve 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.