Monthly Economic ReportExecutive Summary( December 2000 )

JAPANESE ECONOMY

1. OVERVIEW

Personal consumption remains broadly flat while household income has improved a little. Housing investment declined somewhat in the most recent month, as starts of owner-occupied single houses, after rising for the past few months, fell. Business investment continues to rise, led by buoyant outlays by manufacturing firms. Public investment remains lower than in a year earlier. Export volume flattened, and has remained broadly unchanged.

Industrial production continues to rise steadily.

Although the slack in the labour market has diminished little as exemplified by the stubbornly rather high unemployment rate, improvements continue to be seen in the growing number of job offers and in the rising trend of overtime hours worked.

Corporate profits continue to rise markedly. Business confidence continues to improve slightly, with, however, some deterioration foreseen for the immediate future. On the other hand, the number of business failures has stayed somewhat high, with gross debt of failed firms rising.

The Government aims to sustain domestic activities so as to establish an autonomous recovery path, and to make bold reforms of economic structure for the 21^st century. The Government, for this sake, will devote itself to implementing the measures specified in "A Policy Package for New Economic Development toward the Rebirth of Japan"decided as recently as October the 19th.

2. EVALUATION OF INDIVIDUAL INDICATORS

The Japanese economy, in terms of demand, shows that personal consumption remains generally unchanged while household income has improved slightly. Housing investment declined somewhat in the most recent month, as starts of owner-occupied houses fell, after rising for the past few months. Business investment continues to rise, led by buoyant outlays by manufacturing firms. Public investment remains lower than in the previous year.

The real gross domestic product for the July-September quarter of 2000 (preliminary) grew 0.2% over the preceding quarter (or at an annualized rate of 1.0%), with domestic demand contributing 0.3%.

Industrial production continues to rise steadily. Corporate profits continue to rise markedly. The improvement in business confidence has slowed down, with some firms becoming cautious about the immediate future. On the other hand, the number of business failures has stayed somewhat high, with gross debt of failed firms rising.

Although the slack in the labor market has diminished little, as exemplified by the rather high unemployment rate, improvements continue to be seen in the growing number of job offers and in the rising trend of overtime hours worked.

Exports have remained broadly unchanged. Imports are rising moderately. As for the balance of international payments, surpluses registered in the trade and service account decreased slightly due to a rise in crude oil prices. The exchange rate of the yen against the U.S. dollar (interbank spot central rate) depreciated to the 111 level after moving between the 107 and 108 levels in November.

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

Taking a look at the recent financial situation, short-term interest rates rose slightly, while long-term interest rates declined in November. Stock prices rose at first, thereafter fell in November. The money supply (M2+CD) showed a year-on-year increase of 2.1% in November. Lending by financial institutions still remains stagnant and the easing of the stringent feeling of corporate finance has come to a halt.

3. OVERSEAS ECONOMY

The U.S. economy is stable after the speed of its expansion slowed down. The July-September GDP posted an annual growth rate of 2.4% (preliminary), after increasing to 5.6% in the April-June quarter. Personal consumption is increasing. Capital spending is increasing. Housing investment is slowing down. Industrial production (based on the composite index) posted a slower increase. Employment is rising, while prices are stable in general. The trade deficit for goods (on the basis of international balance of payments) still remains high. On November 15, the Federal Reserve Board decided to keep the target level for the federal funds rate and the official discount rate unchanged (6.50% and 6.00%, respectively), but referred risks mainly toward conditions that may generate heightened inflation pressures in the foreseeable future. Long-term interest rates (10-year Treasury bonds) fell in late November, after rising early in the month. Stock prices (Dow Jones industrial average) opened higher in November but then moved in a downward trend, ending the month lower.

In Western Europe, the German, French and U.K. economies are expanding steadily. Industrial production is leveling off in Germany and the U.K. and is rising in France. The unemployment rates have declined in Germany and France, although they still remain at high levels. The unemployment rate of the U.K. has remained at a low level. The rate of increase in consumer prices is rising slightly in Germany and France due to higher energy prices. Prices are 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. In South Korea, although the economy had continued its expansion, uncertainties about the future course of the economy are spreading, due in part to a slower pace of increase in production. South Korean trade, both exports and imports, are rising. As for movements in the international currency market in November, the U.S. dollar (effective exchange rate) declined at the end of the month, after moving generally higher during the month.

As for movements in the international commodity market in November, the CRB commodity futures index moved in an upward trend from the beginning of the month and, at the end of the month, rose above 230 points for the first time in nearly one and a half months. The spot crude oil price (North Sea Brent) moved in an upward trend until the middle of the month but later declined.