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Forecast for the Japanese Economy In Fiscal 2004: October 2003

Summary

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

1. Current State of the Japanese Economy

2. Views of the Economic Outlook-Key Features of a Deflationary Economic Recovery

1. Private Consumption Continues to Be Firm

2. Improvement in Corporate Earnings Structure and Expansion in Capital Investment

3. Stagnation in Inventories

3. Outlook for the Economy-The Sustainability of a Deflationary Economic Recovery

1. Firm Consumption and Expanding Investment

2. Factors Detrimental to Sustainability of the Deflationary Economic Recovery

a. Deceleration in Overseas Economies

b. A Build-up of Inventories

c. Upward Cost Pressure on the Supply Side

2. Outlook for Fiscal 2003/2004

1. Assumptions Underlying the Forecast

1. World Economy

2. Exchange Rates

3. Crude Oil Prices

4. Government Fiscal Policy

5. Monetary Policy

2. Economic Outlook for Fiscal 2003/2004

1. Fiscal 2003: Recovery Led by Exports and Private Capital Investment, Second Consecutive Year of Positive Growth

2. Fiscal 2004: Third Consecutive Year of Positive Growth, Movement into Adjustment Phase as Economies Overseas Slow

3. Outlook by Demand Component

1. External Demand--Contribution will continue to be positive as the world economy recovers, but will begin to have a negative influence in the latter half of fiscal 2004.

2. Corporate Sector: Will continue strong in fiscal 2003 but reach a peak in the middle of fiscal 2004

a. Production: Continued strong growth in fiscal 2003, but with a gradual loss of momentum

b. Corporate Profitability: Profits will continue to rise, but then decline in the latter half of fiscal 2004.

c. Private Capital Investment: Peaking out is forecast in the middle of fiscal 2004

d. Private Inventory Investment: To make positive contributions in fiscal 2003 and fiscal 2004

3. Major improvement in employment and income environments not expected, but the individual sector will show slight increases

a. Employment and Income Environments: No major improvement expected and the unemployment rate will rise in the latter half of fiscal 2004

b. Private Consumption: Although the economy may slow, consumption will remain firm in real terms.

c. Private Residential Investment: The number of new housing starts will be stagnant in fiscal 2004.

4. Government Expenditures: The decline in government public investment spending will continue, but government consumption expenditures will continue to make a positive contribution.

a. Public-Works Investment

b. Government Final Consumption: Will continue to rise because of expansion in medical and nursing costs.

5. Deflationary price trends will continue

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