Monthly Economic ReportExecutive Summary( May 2000 )

JAPANESE ECONOMY

1. OVERVIEW

Personal consumption remains broadly flat, as income is sluggish. Housing investment is decreasing from the high level seen at the beginning of the year, but condominium construction is relatively bullish. 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 finished, and industrial production continues to gradually increase.

The employment situation remains severe, with the unemployment ratio staying at 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, towards 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 make efforts for the rebirth of Japan's economy and for bold structural reform.

2. EVALUATION OF INDIVIDUAL INDICATORS

With regard to demand in the Japanese economy, personal consumption remains broadly flat, as income is sluggish. Housing investment is decreasing from the high level seen at the beginning of the year, but condominium construction is relatively bullish. The decrease in investment in plant and equipment is coming to an end. Firms, especially those in the manufacturing sector, have become more positive towards 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 showing up.

With regard to industry, inventory adjustments have finished, and industrial production continues to gradually increase. Corporate profits are improving. 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 the highest level, 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 for the yen against the U.S. dollar (interbank spot central rate) moved between 104 and 106 in April.

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 did not change during April. Long-term interest rates remained almost unchanged in April. Stock prices leveled off until mid-April and then fell sharply. However, a certain indicator has shown a certain degree of recovery from mid to late April. The money supply (M2+CDs) showed a year-on-year increase of 1.9% in March. Although the feeling of stringent corporate financing has been mitigated, lending by financial institutions still remains stagnant.

3. OVERSEAS ECONOMY

The U.S. economy continues to expand, although its future course is uncertain. 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 sharply along with capital spending. 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 payments) is widening. Long-term interest rates (30-year Treasury bonds) displayed an upward trend in April, although they fell early in the month and tumbled twice later on. Stock prices (Dow Jones industrial average) recorded the biggest point decline in mid-April (14th), but rebounded later on, ending the month slightly lower.

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 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 April 27th, the European Central Bank raised its interest rate (main operation rate) by 0.25 of a percentage point to 3.75% to counteract the upward risk against price stability for the medium term.

Turning to East Asia, the pace of economic growth is slightly rising 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 April, the U.S. dollar (effective exchange rate) moved slightly higher. As for movements in the international commodity market in April, the CRB commodity futures index was in a downward trend for the first 10 days of the month, turned sharply higher over the next 10 days, and then fell again in the last 10 days of the month. The spot crude oil price (North Sea Brent) was in a downward trend early in the month, falling below 21 dollars per barrel at one stage, but rebounded during the middle of the month.