Monthly Economic ReportExecutive Summary( August 2000 )

JAPANESE ECONOMY

1. OVERVIEW

Personal consumption remains broadly flat despite the decrease in income is coming to an end. The level of housing investment is stable as a whole with bullish condominium construction. The recovery in investment in plant and equipment has become clear. The level of public works is lower than the bullish level seen a year ago. Exports, especially those to Asia, are gradually increasing as a trend.

Industrial production continues to rise steadily.

Although the employment situation remains severe with the unemployment ratio staying at a high level, there are improvements such as continued increase in overtime hours worked and in job offers.

Corporate profits are markedly improving. Corporate confidence has further improved as a whole, although it remains at a low level in some sectors. On the other hand, the number of business failures has been somewhat high, with gross debt of failed firms rising.

The main thrust of economic and fiscal policy of the Japanese Government should continue to be to sustain economic recovery. In making every possible effort to bring the economy to an autonomous recovery path, the Government is to monitor carefully economic conjunctures, and to take appropriate actions. Priority should also be put on bold reform of economic structure, which needs swift actions. The Government will compile a new set of policies to implement the Plan for the Rebirth of Japan.

2. EVALUATION OF INDIVIDUAL INDICATORS

The Japanese economy, in terms of demand, shows that personal consumption remains broadly flat despite the decrease in income is coming to an end. The level of housing investment is stable as a whole with bullish condominium construction. The recovery in investment in plant and equipment has become clear. The level of public works is lower than the bullish level seen a year ago.

Industrial production continues to rise steadily. Corporate profits are markedly improving. Corporate confidence has further improved as a whole, although it remains at a low level in some sectors. The number of business failures has been somewhat high, with gross debt of failed firms rising.

Although the employment situation remains severe with the unemployment ratio staying at a high level, there are improvements such as continued increase in overtime hours worked and in job offers.

Exports, especially those to Asia, are gradually increasing as a trend. Imports, especially those from Asia, are increasing. As for the balance of international payments, surpluses registered in the trade and service account remained at almost the same level as a trend. The exchange rate of the yen against the U.S. dollar (interbank spot central rate) depreciated from the 105 level early in July to the 109 level late in the month.

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 rose until mid-July, thereafter fell, and leveled off late in July. Long-term interest rates leveled off in July. Stock prices leveled off in early July but fell sharply late in the month. The money supply (M2+CDs) showed a year-on-year increase of 1.9% in June. Although the stringent feeling of corporate finance has been relieved, lending by financial institutions still remains stagnant.

3. OVERSEAS ECONOMY

The U.S. economy continues to expand, although some sectors of the economy, including personal consumption, are showing slowdowns. The April-June real GDP posted an annual growth rate of 5.2% (preliminary), after increasing 4.8% in the January-March quarter. Personal consumption is slowing down, as spending on durable consumer goods decreased. Capital spending is increasing sharply. Housing investment is increasing, but new housing starts are decreasing. Industrial production (based on the composite index) is increasing. Employment is rising, while prices are generally stable. The trade deficit for goods (on the basis of international balance of payments) is widening. Long-term interest rates (10-year Treasury bonds) moved sideways in early July, then rose, but fell later in the month, ending the month higher. Stock prices (Dow Jones industrial average) remained on an upward trend in the first half of July but fluctuated in the second half of the month, ending the month lower.

In Western Europe, the German and French economies are expanding, while the pace of economic growth is slowing down in the U.K. Industrial production is rising in Germany and is also rising moderately in France, but the degree of increase has become moderate in the U.K. The unemployment rates have declined in Germany and France, although they still remain at high levels. The level of unemployment is also declining 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.

Turning to East Asia, the pace of economic growth has slightly increased in China and prices are stable. 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 July, the U.S. dollar (effective exchange rate) moved generally higher.

As for movements in the international commodity market in July, the CRB commodity futures index fell early in the month, then rose in the middle of the month, but fell again late in the month. The spot crude oil price (North Sea Brent) was on a downward trend early in the month, rose briefly in the middle of the month, but fell to the level of 25 dollars per barrel late in the month.