Monthly Economic ReportExecutive Summary( July 2000 )

JAPANESE ECONOMY

1. OVERVIEW

Personal consumption remains broadly flat, while 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 gradually increase.

Although the employment situation remains severe with the unemployment ratio staying at a high level, there are improvements such as continued increases 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.

2. EVALUATION OF INDIVIDUAL INDICATORS

The Japanese economy has been supported by public demand. The Government has decided to promptly spend the contingency budget for public works in order to make sure to support activities. At the same time, with the aim of putting the economy on a sustainable autonomous recovery path and of constructing an economy and society that would become a new foundation for development in the 21st century towards a renewal of economy, the Government will compile a new set of policies to implement the Plan for the Rebirth of Japan.

With regard to demand in the Japanese economy, personal consumption remains broadly flat, while 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.

With regard to industry, industrial production continues to gradually increase. 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 bankruptcies is increasing.

Although the employment situation remains severe with the unemployment ratio staying at a high level, there are improvements such as continued increases 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 US dollar (interbank spot central rate) appreciated to the 105 level in early June and then fluctuated between the 104 and 106 level for the rest of 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 almost leveled off until mid-June and rose sharply in late June. Long-term interest rates remained almost unchanged in June. Stock prices rose early in June, then fell in mid-June, but rose again later in the month. The money supply (M2+CDs) showed a year-on-year increase of 1.9% in June. Although the feeling of stringent corporate financing has been mitigated, lending by financial institutions still remains stagnant.

3. OVERSEAS ECONOMY

The US economy continues to expand, although some sectors of the economy are showing signs of a slowdown compared with the beginning of the year. The January-March real GDP posted an annual growth rate of 5.5%, after increasing 7.3% in the October-December quarter. Personal spending is increasing as a whole, but spending on durable consumer goods is decreasing. Capital spending is increasing sharply. Housing investment increased. Recent movements show that 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 the international balance of payments) still remains at a high level. On June 26th, the Federal Reserve Board decided to keep the official discount rate and the targeted federal funds rate unchanged (at 6.50% and 6.00%, respectively), but referred risks mainly towards conditions that may generate heightened inflation pressures in the foreseeable future. Long-term interest rates (10-year Treasury bonds) remained on a downward trend early in June, then rose, but fell again later in the month, ending the month lower. Stock prices (Dow Jones industrial average) remained on a downward trend in June, 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 recently in China, and consumer prices have turned upward. 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 June, the US dollar (effective exchange rate) moved almost sideways during the month.

As for movements in the international commodity market in June, the CRB commodity futures index moved sideways until mid-June and then rose slightly later in the month. The spot crude oil price (North Sea Brent) moved at around 29 dollars per barrel early in June but rose to above 30 dollars later in the month.