Japan Economy and Financial System

Toshihiko Fukui: An overview of Japan's economy and financial system

Summary of a speech by Mr Toshihiko Fukui, Governor of the Bank of Japan, at a meeting with business leaders in Sendai, 1 October 2003.

The speech was delivered by Kazumasa Iwata, Deputy Governor of the Bank of Japan, on behalf of the Governor.

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Current State of the Japanese Economy and Developments in Financial Markets

Let me begin by discussing the world economy. The U.S. economy has spurred a moderate recovery supported by personal consumption. Recovery is beginning to spread to orders received by manufacturers and capital spending with the rise in world demand for IT-related products. The large-scale tax cuts are beginning to have a positive impact on personal consumption. Growth seems increasingly likely to start accelerating, while pressure on labor adjustment remains. Economic activity in East Asia is also heading for recovery. In China, the adverse effects arising from severe acute respiratory syndrome (SARS) have virtually ended, and exports of the NIEs and ASEAN are expected to increase with the worldwide recovery in IT-related demand. In Europe, there are signs of improvement in corporate sentiment, although the impetus for recovery is not yet evident. The above assessment of the global economy was endorsed at the G-7 meeting last month in Dubai. Turning to the domestic arena, capital spending is recovering gradually as corporate profits increase. Largely thanks to this recovery, real GDP posted an annualized growth rate of 3.9 percent in the AprilJune quarter, far exceeding market expectations. The Tankan survey released on October 1 shows that the capital spending plans of large manufacturers for fiscal 2003 are expected to increase 11 percent on a year-on-year basis, and that of all enterprises is slightly larger than the figure in the previous year. Thus, the recovery of capital spending is expected to become more certain. Personal consumption has been weak...