JAPANESE ECONOMY

Personal consumption remains recovered from a decline at the end of last year, but it is not yet in an increasing trend. This is because income is sluggish. The level of housing investment is higher than a year ago, but is decreasing from the high level seen at the beginning of the year, mainly because of owner-occupied housing. The decrease in investment in plant and equipment is coming to an end. Firms, especially those in the manufacturing sector, have become more positive toward investments and recoveries are spreading.

The level of public works is considerably lower than the high level seen a year ago, although the effects of the second supplementary budget, etc. are coming out. Exports, especially those to Asia, are increasing.

Inventory adjustments have broadly finished, and industrial production keeps gradually increasing.

The employment situation remains severe, with the unemployment ratio recorded the highest level, despite continued increases in overtime hours worked and in job offers.

Corporate profits are improving. Corporate confidence has further improved, although it remains at a low level.

The Government aims to realize a smooth baton pass, toward a full-scale recovery, from public to private demand and to establish a new solid foundation for economic development in the 21st century. From this viewpoint, the Government will strongly promote measures, especially those in "The Policy Measures for Economic Rebirth."

The Japanese economy, in terms of demand, shows that personal consumption has continued recovering from a decline at the end of last year, but the improving trend has yet to take hold due to sluggish income. Housing construction is higher than a year ago, but is decreasing from the high level seen at the beginning of the year, mainly because of owner-occupied housing. The decrease in investment in plant and equipment is coming to an end. Firms, especially those in the manufacturing sector, have become more positive toward investments and recovery is seen in more industries. The level of public works is considerably lower than the high level seen a year ago, although the effects of the second supplementary budget, etc. are taking effect.

With regard to industry, inventory adjustments are almost over, and industrial production keeps gradually increasing. Corporate profits are improving. Corporate confidence has further improved, although it still remains at a low level. The number of bankruptcies remains almost at the same level.

The employment situation remains severe, with the unemployment rate recording a high level not seen before, despite continued increases in overtime hours worked and in job offers.

Exports and imports, especially those to and from Asia, are increasing. As for the balance of international payments, surpluses registered in the trade and service account remained almost the same level as a trend, although an increase was seen after a decline at the end of last year. The exchange rate of the yen against the U.S. dollar (interbank spot central rate) depreciated to the 107 level after appreciating to the 105 level in mid-March but ended the month at the 105 level.

Reviewing price movements, domestic wholesale prices remain almost at the same level, while consumer prices remain stable.

Taking a look at the recent financial situation, short-term interest rates remained constant until mid-March when they first rose and then declined slightly later on in the month. Long-term interest rates declined slightly in early March before rising and then declining slightly again later on in the month. Stock prices fell until mid-March, thereafter rose. The money supply (M2+CDs) showed a year-on-year increase of 2.1% in February. Although the feeling of stringent corporate financing has been mitigated, lending by financial institutions remains stagnant.

The U.S. economy continues to expand, although its future course is uncertain. The October-December real GDP posted an annual growth rate of 7.3% over the previous quarter, after increasing 5.7% in the July-September quarter. Personal spending is increasing. Capital investment has slowed down in reaction to the sharp increase in the July-September quarter. The growth in housing investment has been slackening. Industrial production (based on the composite index) is increasing. Employment is rising. Prices are generally stable. The trade deficit for goods (on the basis of the international balance of payments) is widening. On March 21st, the Federal Reserve Board raised the official discount rate by 0.25 of a percentage point to 5.50% and the targeted federal funds rate by 0.25 of a percentage point to 6.00%. Long-term interest rates (30-year Treasury bonds) were in a downward trend in March. Stock prices (Dow Jones industrial average) fell in the first half of March and rose sharply in the second half, ending the month higher.

In Western Europe, the French and U.K. economies are expanding, while the German economy is also expanding, albeit gradually. Industrial production is rising in Germany but has slowed down recently in France and is slowing down in the U.K. The unemployment rates have declined in France and declined slightly in Germany, although they still remain at high levels. The level of unemployment is also decreasing in the U.K. Prices are generally stable in Germany, although import prices are rising. Prices are also generally stable in France and stable in the U.K. On March 16th, the European Central Bank raised its interest rate (main operation rate) by 0.25 of a percentage point to 3.50% to counteract the risk against price stability for the medium term.

Turning to East Asia, the pace of economic growth is slowing in China, and consumer prices rose. Both exports and imports are rising sharply in China. The South Korean economy is expanding. South Korean trade, both exports and imports, are rising sharply.

As for movements in the international currency market in March, the U.S. dollar effective exchange rate did not fluctuate significantly.

As for movements in the international commodity market in March, the CRB commodity futures index rose to 217 points in mid-March, a level not seen since May 1998, but then fell slightly in the last 10 days of the month. The spot crude oil price (North Sea Brent) rose sharply early in the month, hitting the 31-dollar-per-barrel level for the first time since the Gulf War, but fell back to the level of 23 dollars per barrel at the end of the month.