Monthly Economic ReportExecutive Summary( September 2000 )

JAPANESE ECONOMY

1. OVERVIEW

Personal consumption remains broadly flat, despite the decrease in income is coming to an end. The level of housing investment is stable as a whole with bullish condominium construction. Investment in plant and equipment continues its upward trend. 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 are 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 should continue to be to sustain economic recovery. In making every possible effort to lead the economy to an autonomous recovery path, the Government is to monitor carefully economic conjunctures, and to take appropriate actions. Priority should also be put on bold reform of economic structure, which needs swift actions. The Government will compile a new set of policies to implement the Plan for the Rebirth of Japan.

2 .EVALUATION OF INDIVIDUAL INDICATORS

The Japanese economy, in terms of demand, shows that personal consumption remains broadly flat, despite the decrease in income is coming to an end. The level of housing investment is stable as a whole with bullish condominium construction. Investment in plant and equipment continues its upward trend. The level of public works is lower than the level seen a year ago.

The real gross domestic product for the April-June period (preliminary) increased 1.0% (or at an annualized 4.2%) from the previous quarter.

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 are 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 as a trend. The exchange rate of the yen against the U.S. dollar (interbank spot central rate) shifted between the 107 level and the 109 level until the middle of the month, but rose to the 106 level late in 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 rose when the Bank of Japan terminated the zero interest rate policy on August 11, then made a slight further increase toward the end of the month. Long-term interest rates rose in August. Stock prices leveled off in early August but rose late in the month. The money supply (M2+CDs) showed a year-on-year increase of 1.7% in August. Although the stringent feeling of corporate finance has been relieved, lending by financial institutions still remains stagnant.

3. OVERSEAS ECONOMY

The U.S. economy continues to expand, although some sectors of the economy, including personal consumption, are showing slowdowns. The April-June real GDP posted an annual growth rate of 5.3% (preliminary figure), after increasing 4.8% in the January-March quarter. Personal consumption is indicating a slowdown. Capital spending is increasing sharply. Housing investment is slowing down. Industrial production (based on the composite index) is increasing. Employment is declining partly due to some special factors. Prices are stable in general. The trade deficit for goods (on the basis of international balance of payments) still remains high. On August 22, the Federal Reserve Board decided to keep the target level for the federal fund 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 foreseeable future. Long-term interest rates (10-year Treasury bonds) remained on a downward trend in August. Stock prices (Dow Jones industrial average) remained on an upward trend.

In Western Europe, the German, French and U.K. economies are expanding. Industrial production is rising in Germany and is leveling off in France, while 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 has remained at a low level 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 August 31, the European Central Bank raised the official interest rate (minimum bid rate) by 0.25% to 4.50% in order to suppress medium-term 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 August, the U.S. dollar (effective exchange rate) generally remained at the same level.

As for movements in the international commodity market in August, the CRB commodity futures index generally leveled off early in the month, then rose from the middle of the month. The spot crude oil price (North Sea Brent) was on an upward trend from early in the month, and stayed above 30 dollars late in the month.