Monthly Economic ReportExecutive Summary( October 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, though condominium construction, which had been buoyant in recent months, declined. Investment in plant and equipment continues its upward trend, with investment plans in manufacturing revised upwards. The level of public works is lower than the level seen a year ago. Exports, especially those to Asia, have been rising modestly, despite a slowdown in exports to the United States and Europe.

Industrial production continues to rise steadily.

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

Corporate profits continue to improve markedly. 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 has been to sustain domestic economy 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, is to compile new economic measures to implement the Plan for the Rebirth of Japan, and to prepare a revised budget for fiscal 2000.

2. EVALUATION OF INDIVIDUAL INDICATORS

The Japanese economy, in terms of demand, shows 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, though condominium construction, which had been buoyant in recent months, declined. Investment in plant and equipment continues its upward trend, with investment plans of the manufacturing industry revised upwards. The level of public works is lower than the level seen a year ago.

Industrial production continues to rise steadily. Corporate profits continue to improve markedly. 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.

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

Exports, especially those to Asia, have been rising modestly, despite a slowdown in exports to the United States and Europe. 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. The exchange rate of the yen against the U.S. dollar (interbank spot central rate) depreciated to the 109 level early in October, after appreciating from the 106 level to the 105 level in early September.

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

Taking a look at the recent financial situation, short-term interest rates remained at almost the same level during most of September, but rose between late September and early October. Long-term interest rates rose in early September but declined later and moved sideways before falling slightly between late September and early October. Stock prices fell towards the end of September but rose slightly between late September and early October. The money supply (M2+CDs) showed a year-on-year increase of 1.9% in September. Although the stringent feeling of corporate finance has been easing as a trend, lending by financial institutions still remains stagnant.

3. OVERSEAS ECONOMY

The U.S. economy continues to expand, although slower than it did at the beginning of this year. The April-June GDP posted an annual growth rate of 5.6%, after increasing 4.8% in the January-March quarter. Personal consumption is increasing. Capital spending is increasing sharply. Housing investment is slowing down. Industrial production (based on the composite index) is increasing. 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 October 3, 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 towards conditions that may generate heightened inflation pressures in the future. Long-term interest rates (10-year Treasury bonds) moved sideways in September. Stock prices (Dow Jones industrial average) fell sharply.

In Western Europe, the German, French and U.K. economies are expanding. Industrial production is rising in Germany and in the U.K. and is leveling off 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 consumer prices increases in Germany rose slightly due to higher energy prices. Prices are generally stable in France and stable in the U.K. On October 5, the European Central Bank raised the official interest rate (minimum bid rate) by 0.25% to 4.75% in order to suppress upward price pressures.

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 continuing to expand, although it is slowing down compared with the rapid recovery seen after the crisis. South Korean trade, both exports and imports, are rising sharply.

As for movements in the international currency market in September, the U.S. dollar (effective exchange rate) moved generally higher.

As for movements in the international commodity market in September, the CRB commodity futures index rose slightly higher early in the month but then moved in a downward trend. The spot crude oil price (North Sea Brent) rose above the level of 37 dollars per barrel early in the month but then declined and fell below 30 dollars late in the month.