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Forecast for the Japanese Economy In Fiscal 2004 and 2005: August 2004

Summary

1. Current State of Japan's Economy and Summary of the Outlook

1. Current State of the Japanese Economy

2. Key Features of the Economic Outlook

a. Trends in Overseas Economies

b. Inventory Investment

c. Capital Investment

d. Private Consumption

2. Outlook for the Economy in Fiscal 2004 and Fiscal 2005

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 2004 and Fiscal 2005
Fiscal 2004: Third consecutive year of positive real growth, but with a movement into an adjustment phase in the second half

3. Outlook for fiscal 2005: Recovery to resume in the second half, the fourth consecutive year of positive real growth

3. Outlook by Demand Component

1. External Demand: Outlook for a negative contribution beginning in the latter half of fiscal 2004

2. Corporate Sector: Will peak out in the latter half of fiscal 2004

a. Production: Will begin to decline in the latter half of fiscal 2004

b. Corporate Profitability: Downtrend in manufacturing profits in the latter half of fiscal 2004

c. Private Capital Investment: Increase to continue through end of the year, followed by a slump early next year

d. Private Inventory Investment: Fluctuations likely to remain small

3. Household Sector

a. Employment: Currently improving, but conditions will deteriorate again in fiscal 2005.

b. Incomes: No major improvement is expected, may begin to decline again in fiscal 2005

c. Private Consumption: Growth will be lackluster in fiscal 2005 as the employment and income environments deteriorate.

d. Private Residential Investment: Housing starts to remain lackluster in fiscal 2004 and thereafter

4. Government Sector

a. Government Public Investment: Continued decline anticipated

b. Government Final Consumption Expenditures

5. Prices: Deflationary pressures recede temporarily.

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