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Forecast for the Japanese Economy In Fiscal 2003/2004: May 2003

Summary

1. Current State of the Japanese Economy and Outlook for Fiscal 2003/2004

1. Current State of the Japanese Economy

2. Outlook for Fiscal 2003/2004

2. Economic Outlook for Fiscal 2003/2004

1. Assumptions Underlying the Forecast

a. World Economy

b. Exchange Rates

c. Crude Oil Prices

d. Government Fiscal Policy

e. Monetary Policy

2. Economic Outlook for Fiscal 2003/2004

3. Outlook by Demand Component

1. External Demand: Neutral for the Economy in Fiscal 2003, Negative in Fiscal 2004

2. Corporate Sector: to Decelerate in the Second Half of Fiscal 2003

a. Production: Pause in the First Half of Fiscal 2003, Followed by Downtrend in the Second Half

b. Corporate Profits: Ongoing Improvement through the First Half of Fiscal 2003, but Deterioration Thereafter

c. Private Capital Investment: Modest Recovery Continues in the First Half of Fiscal 2003, but Decline Likely in the Second Half

d. Inventory Investment: Positive Contributions to Growth in Fiscal 2003

3. Employment and Income Environments Will Remain Severe, but Household Sector Will Be Flat

a. Employment and Income Environments: No Expectation of Major Improvement, Downtrend in Fiscal 2004

b. Private Consumption: Harsh Environment to Continue, Flat on a Real Basis and Negative on a Nominal Basis

c. Private Residential Investment: Downward Trend to Continue; Surge in Demand Prior to Expiration of Housing Loan Tax Relief Measure Not Expected to Be Great

d. Public Works Investment: Downtrend to Remain Intact Despite Outlook for Supplementary Budget

e. Price Levels: Deflationary Trends to Persist

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