The following is an unedited transcript of the news release from the Bank of Japan.

Policy Board Members Present:

Mr. M. Shirakawa, Chairman, Governor of the Bank of Japan
Mr. K. G. Nishimura, Deputy Governor of the Bank of Japan
Ms. M. Suda
Mr. A. Mizuno
Mr. T. Noda
Mr. S. Nakamura
Mr. H. Kamezaki
Government Representatives Present
Mr. H. Moriyama, Senior Vice Minister of Finance, Ministry of Finance2
Mr. M. Suzuki, Deputy Vice Minister for Policy Planning and Coordination, Ministry
of Finance3
Mr. J. Hamano, Vice Minister for Policy Coordination, Cabinet Office
Reporting Staff
Mr. H. Yamaguchi, Executive Director
Mr. A. Horii, Executive Director (Assistant Governor)
Mr. K. Ido, Executive Director
Mr. K. Yamamoto, Executive Director
Mr. M. Amamiya, Director-General, Monetary Affairs Department
Mr. S. Uchida, Associate Director-General, Monetary Affairs Department
Mr. T. Sekine, Senior Economist, Monetary Affairs Department

Mr. H. Nakaso, Director-General, Financial Markets Department
Mr. K. Momma, Director-General, Research and Statistics Department
Mr. E. Maeda, Associate Director-General, Research and Statistics Department
Mr. T. Idesawa, Director-General, International Department
Secretariat of the Monetary Policy Meeting
Mr. K. Osugi, Director-General, Secretariat of the Policy Board
Mr. K. Shigyoh, Director, Deputy Head of Secretarial Services for the Board, Secretariat
of the Policy Board
Mr. K. Nakamura, Senior Economist, Monetary Affairs Department
Mr. K. Suzuki, Senior Economist, Monetary Affairs Department
Money Market Operations in the Intermeeting Period

The Bank conducted money market operations in accordance with the guideline decided at the previous meeting on April 30, 2008.5 As a result, the uncollateralized overnight call rate had been at around 0.5 percent.

Recent Developments in Financial Markets

In the money market, Euroyen rates and interest rates on term instruments, such as yields on financing bills (FBs) and treasury bills (TBs), had been more or less flat on the whole. Interest rates on Euroyen futures had also been more or less unchanged, albeit with some fluctuations.

Japanese stock prices had trended upward following U.S. and European stock prices, albeit with some fluctuations. The Nikkei 225 Stock Average had been moving in the range of 14,000-14,500 yen recently.

Long-term interest rates continued to fluctuate widely following those in the United States and Europe. They had recently been at around 1.6-1.7 percent. The yen remained more or less unchanged against the U.S. dollar, and had recently been traded in the range of 104-105 yen against the dollar.

Overseas Economic and Financial Developments

Growth in the U.S. economy had remained sluggish. Adjustments in the housing market had persisted, private consumption had continued to be more or less unchanged, and a slowdown in business fixed investment had become more evident. Industrial production and the number of employees had also been on a declining trend. In this situation, financial institutions had been applying tighter lending standards to a broad range of borrowers. As for prices, the year-on-year rate of increase in consumer prices had been elevated, not only in terms of the consumer price index (CPI) for all items but also the CPI for all items less energy and food, or the core CPI, which registered a year-on-year rate of increase of 2.0-2.5 percent.

The economy of the euro area continued to grow, although the pace of growth was slowing moderately. Housing investment had decreased slightly, and the pace of growth in private consumption had slowed due to the rise in energy and food prices and to uncertainty about the outlook for the economy. Meanwhile, business fixed investment was on an upward trend. Exports, the growth of which lost momentum temporarily, had resumed their increasing trend. However, survey results suggested that their growth was likely to slow. As for prices, the year-on-year rate of increase in the Harmonized Index of Consumer Prices (HICP) continued to be relatively high, reflecting the rise in energy and food prices. The U.K. economy continued to grow, albeit with a moderate slowing of the pace of growth.

In China, both domestic and external demand continued to expand strongly. India''s economy continued to show relatively high growth, although it was slowing moderately. The NIEs and ASEAN economies as a whole continued to expand at a moderate pace since domestic demand remained firm, although a slowdown in exports was becoming evident. As for prices, the year-on-year rate of increase in the CPI for all items had risen in many Asian economies due to the rise in energy and food prices.

In global financial markets, instability continued as seen in the persisting strains in money markets, although overly pessimistic views about global financial markets had subsided compared with some time ago. In the U.S. and European financial markets, stock prices and long-term interest rates rose, albeit with large fluctuations. In emerging economies, developments in stock prices followed those in the United States and Europe, and yield differentials between their sovereign bonds and U.S. Treasuries narrowed temporarily reflecting developments in U.S. interest rates but expanded thereafter.

Economic and Financial Developments in Japan

Economic developments

Exports had continued to increase against the background of the expansion of overseas economies, posting a solid increase in the January-March quarter from the previous quarter. They were expected to continue to rise, as overseas economies were likely to expand although at a slower pace. As for domestic private demand, the pace of increase in business fixed investment had become slower in a situation where corporate profits had been leveling off, albeit at a high level. Firms'' forecasts of machinery orders, a leading indicator of machinery investment, for the April-June quarter showed a significant drop from the previous quarter.

Historically, actual machinery orders tended to be stronger than the forecasts, but due attention should be paid to developments in machinery orders this year in view of the recent environment for corporate profits.

Private consumption had been firm. With regard to durable consumer goods, the number of new passenger-car registrations had been more or less unchanged lately, after picking up in the second half of 2007 supported mainly by the introduction of new models. Sales of electrical appliances had continued to increase. As for nondurable and semi-durable consumer goods, sales at department stores had been somewhat weak, notably in apparel and general merchandise. Sales at supermarkets and convenience stores, including those of foods, had been more or less flat. As for services consumption, outlays for travel had been firm, while sales in the food service industry had been leveling off. Consumer sentiment had been generally cautious, due mainly to rises in prices of petroleum products and food products. Private consumption was expected to remain firm, reflecting the gradual increase in household income.

Housing investment had been recovering moderately. The number of housing starts, a leading indicator of housing investment, continued to pick up until January 2008, but since then it had leveled off. The slowdown in the pace of recovery seemed to be mainly due to the softness in sales of condominiums and further increases in prices of structural steel. Housing investment was expected to be on a recovery trend, but the pace was likely to be modest.