Monthly Economic ReportExecutive Summary( June 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 high level seen a year ago, although the effects of the second supplementary budget are seen. Exports, especially those to Asia, are increasing.

Inventory adjustments have finished, and industrial production continues to gradually increase.

The employment situation remains severe, with the unemployment ratio staying at a high level, despite improvements such as continued increases in overtime hours worked and in job offers.

Corporate profits have markedly improved and many corporations disposed of latent losses, etc. in settling their March accounts. Corporate confidence has further improved, although it remains at a low level.

2. EVALUATION OF INDIVIDUAL INDICATORS

The Japanese economy, which has been supported by public demand, shows growing signs towards autonomous recovery. The Government aims to lead them into a full-blown recovery path and to establish a new solid foundation for economic development in the 21st century. From this viewpoint, the government will make decisive efforts for the renewal of Japan's economy and for the structural reform.

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 clearer.

The level of public works is lower than the high level seen a year ago, although the effects of the second supplementary budget are seen.

The real gross domestic product for the January-March 2000 period (preliminary) increased 2.4% (or at an annualized 10.0%) from the previous quarter.

With regard to industry, inventory adjustments have finished, and industrial production continues to gradually increase. Corporate profits have markedly improved and many corporations disposed of latent losses, etc. in settling their March accounts. Corporate confidence has further improved, although it remains at a low level. The number of bankruptcies is increasing.

The employment situation remains severe, with the unemployment ratio staying at a high level, despite improvements such as 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 at almost the same level as a trend. The exchange rate of the yen against the U.S. dollar (interbank spot central rate) depreciated to the 109 level in early May but appreciated to the 106 level in late May. Later, the yen appreciated to the 105 level after depreciating to the 108 level from late May to early June.

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 moved almost sideways from May to early June. Long-term interest rates remained unchanged from May to early June. Stock prices fell sharply until late May but recovered slightly in early June, thereafter fell again in mid-June. Money supply (M₂+CD) showed a year-on-year increase of 2.2% in May. Although the feeling of stringent corporate financing has been mitigated, lending by financial institutions still remains sluggish.

3. OVERSEAS ECONOMY

The U.S. economy continues to expand, although some sectors of the economy show what could be seen as signs of a slowdown. The January-March real GDP posted an annual growth rate of 5.4% (preliminary figure) over the previous quarter, after increasing 7.3% in the October-December quarter. Personal spending is increasing. Capital spending is increasing sharply. Housing investment and industrial production (based on the composite index) are also increasing. Employment is rising, while prices are generally stable. The trade deficit for goods (on the basis of the international balance of payment) is widening. On May 16th, the Federal Reserve Board raised the official discount rate and the targeted federal funds rate by 0.5 of a percentage point to 6.00% and 6.50%, respectively, and referred risks mainly towards conditions that may generate heightened inflationary pressure in the foreseeable future. Long-term interest rates (10-year Treasury bonds) rose early in the month and fell after moving up and down in mid-May, but ended the month higher. Stock prices (Dow Jones industrial average) moved up and down in the first half of May and fell in the second half, 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 but has slowed down recently in France and is slowing down 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. On June 8th, the European Central Bank raised its interest rate (main operation rate) by 0.5 of a percentage point to 4.25% to counteract the upward risk against price stability for the medium term.

Turning to East Asia, the pace of economic growth has slightly increased recently in China, and consumer prices are declining. 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 May, the U.S. dollar (effective exchange rate) moved almost sideways in the first half of the month but depreciated in the second half.

As for movements in the international commodity market in May, the CRB commodity futures index turned upward in mid-May and recorded the 225 point level in late May for the first time in nearly two years. The spot crude oil price (North Sea Brent) was in an upward trend early in the month and, after a brief decline in mid-May, rose to above 30 dollars per barrel later in the month for the first time in two and half months.