## Bank of Japan's September report of Recent Economic and Financial Developments BANK OF JAPAN COMMUNICATION, 11/9/98.
## The Bank ' s View 1
Japan ' s economic conditions continue to deteriorate.
With respect to final demand, public investment seems to have bottomed out. exports (exports minus imports) are increasing mainly due to a decline in imports. H business fixed investment has been decreasing significantly, and housing investment has further. Private consumption has not yet shown a recovery despite the special income tax r Against this background of weak final demand, production has been reduced substantially result, some industries have shown improvements in inventory adjustments, but the le inventories is still high as a whole. With the decline in expenditure and production, corp continue to decrease, and the decline of employee income is accelerating somewhat. In addi ratio of job offers to applications records a historically low level, and the unemplo remains at a high level. As a whole, the employment and income conditions have deteri further.
As the above indicates, there are continued negative interactions of prod income, and expenditure. Given the current considerably low level of economic activit economy is unlikely to transit immediately to a self-sustained recovery led by private although a further deterioration in the economy is expected to cease gradually from the ef comprehensive economic stimulus package. Additionally, attention should be paid to po negative effects on the real economy from financial developments including the recent fal prices. In these circumstances, the cabinet approved a guideline on budget requests by min fiscal 1999. This guideline intends to stimulate the economy by allocating ¥ 4 trillion to the special budgetary provision on the condition that the Fiscal Structural Reform Act is suspended. I the bills to rebuild the stability of the financial system are being deliberated at the reduction exceeding ¥ 6 trillion in personal income taxes and corporate taxes is expected discussed in detail. The materialization of these policies along with their effects on c household sentiment should be carefully monitored.
With regard to prices, wholesale prices are on a downtrend, and consumer pric lowering below the previous year ' s level. With respect to the outlook, the downward pressure fr domestic factors is unlikely to weaken considerably reflecting the already large output g the expected effects of the comprehensive economic stimulus package. Hence, prices are lik weak for some time.
In the financial markets, stock prices dropped considerably in late August a remain unstable, due to the heightened uncertainty over the problems with the financial s the worldwide stock market plunge triggered by Russia ' s financial crisis. Meanwhile, interest rat spreads, such as the rate differential between Euro-yen deposits and treasury bills, premium, and the yield differential between private and government bonds, expanded again background of intensified market concern toward credit risks of Japanese financial ins Nevertheless, both long- and short-term interest rates declined slightly as a whole, which indicates that some market participants anticipated additional monetary easing.
1 The Bank's view on recent ec onomic and financial developments, determined by the Policy Board at the Monetary Policy Meeting held on September 9, as the basis of monetary policy decisions.
With respect to corporate finance, some firms are moving to resume secur on-hand liquidity against the cautious lending stance of private banks, although credit real economic activities remains sluggish. Consequently, the issuance of corporate bo commercial paper continues to increase, and the private bank lending, measured by annual changes, has escaped further decline so far. In addition, the growth of money stock appea back its recent decelerating trend.
However, some firms, especially small and medium-sized ones, continue to fac severe environment in terms of both funds availability and fund-raising costs. This influe economy continues to warrant careful monitoring.