Looking at the number of housing starts in detail according to the type of housing, owner-occupied housing—consisting mostly of small-scale properties—has been almost flat, after having regained its level observed before the revised Law took effect. The pace of recovery in housing for rent and housing for sale has been slow; their levels have been well below those prior to the revised Law. Looking ahead, housing investment is expected to recover gradually, although it is likely to remain sluggish for the time being, since the effects from the revised Law will persist. From a somewhat longer-term perspective, it will regain its firmness, against the background of the rise in household income and favorable financial conditions. Nevertheless, taking the softness in sales of condominiums into consideration, there is large uncertainty regarding the degree of recovery in housing investment.

Industrial production has continued to increase against the background of the growth in domestic and external demand. Production rose by 1.3 percent in the fourth quarter compared with the third quarter, when it marked a relatively large increase of 2.2 percent on a quarter-on-quarter basis. As for recent developments by industry, production of electronic parts and devices rose firmly, assisted by strong production in those for digital home appliances and game consoles, as well as by the pickup in production in those for personal computers. Production of transport equipment has increased, supported by favorable exports and by the pickup in domestic sales.

Moreover, information and communication electronics equipment has also continued to increase. Meanwhile, although its contribution to overall production is small, production of ceramics, stone, and clay products (such as cement, sheet glass, and sanitary ceramic wares) has dropped markedly from the effects of the revised Building Standard Law. Shipments have also continued to increase. By goods, shipments of capital goods (excluding transport equipment) have been on an uptrend, albeit with some fluctuations, in light of steady demand at home and abroad. On the other hand, as for consumer goods, shipments of nondurable goods have trended downward, whereas those of durable goods have been on the rise chiefly in digital home appliances and automobiles. In response to these movements in final demand goods and to the increase in exports, shipments of producer goods have increased firmly, especially in electronic parts and devices. Meanwhile, shipments of construction goods have registered a marked decline lately, affected by the ongoing sluggishness in public investment and by the revised Building Standard Law.

Inventories have been essentially in balance with shipments. The inventory cycle shows that, in the industrial sector as a whole, the shipment-inventory balance (the year-on-year rate of change in shipments minus that in inventories) has been more or less favorable. By goods, inventories of producer goods excluding electronic parts and devices (such as iron and steel) have remained relatively low, while shipments have risen persistently. As for capital goods (excluding transport equipment), although inventories have remained at somewhat high levels, the shipment-inventory balance has improved as a trend, assisted by generally steady demand both at home and abroad. In electronic parts and devices, while final goods manufacturers have continued to introduce new products at a good pace, shipments have registered a year-on-year increase, and inventories have marked a noticeable year-on-year decline. As a result, inventories have been well-balanced with shipments. However, because the pace of increase in the supply capacity tends to be rapid for this sector and because there is great uncertainty surrounding the impact of an economic slowdown in the United States, future developments in the global supply-demand balance continue to require close monitoring. In durable consumer goods, inventories have been almost in balance with shipments. As for construction goods—which have been affected by the revised Building Standard Law—inventory adjustment pressures have built up as the year-on-year rate of decline in shipments has expanded and inventories have risen substantially on a year-on-year basis. As for the outlook, production is expected to follow an increasing trend, although it is likely to be flat in the short run, in light of developments in domestic and external demand. Anecdotal information also suggests that production will be more or less flat in the first quarter on a quarter-on-quarter basis.

As for the employment and income situations, household income has continued rising moderately, supported by the increase in the number of employees, while the labor shortage continues to exist. In the labor market, overtime hours worked have been virtually flat at high levels. The unemployment rate has recently been marking a level slightly below 4 percent on average.

In terms of employment, the year-on-year growth rate in the number of employees in the Labour Force Survey has generally been moving at around 1.0 percent. The year-on-year growth rate in the number of regular employees in the Monthly Labour Survey has basically been moving in the range of 1.5-2.0 percent. Looking at the number of regular employees in the Monthly Labour Survey in detail, while both full-time and part-time employees have continued to increase, the growth in part-time employees, in particular, has accelerated since around the end of 2006, resulting in a rise in the ratio of part-time employees from the previous year.

Nominal wages per employee have remained somewhat lackluster. The year-on-year rate of change in regular payments has stayed at around zero percent, since they have been held down by the retirement of the high-wage-earning baby-boomers and by an increase in the hiring of relatively low-wage-earning new graduates under a situation in which firms have persisted in labor cost restraints.9 As for overtime payments, the pace of increase has slowed lately, to around zero percent on a year-on-year basis, although they have remained on a moderate upward trend. Meanwhile, special payments in November-December—which represent most winter bonuses—continued to decline following that of summer bonuses.

Prices

Import prices (on a yen basis; the three-month rate of change) have increased, mainly due to the rise in crude oil prices, although the pace of increase has recently slowed primarily due to the yen''s appreciation. Looking at recent developments in international commodity prices in more detail, crude oil prices have continued to be high. Prices of crops such as wheat have also continued to increase, due to the ongoing rise in global demand and to the adverse weather in major production centers. On the other hand, prices of nonferrous metals had been softening since fall last year, due to concerns over a slowdown in the U.S. economy, but they have rebounded slightly of late. Meanwhile, domestic commodity prices have been high, reflecting developments in international commodity prices.

The three-month rate of change in domestic corporate goods prices (adjusted to exclude the effects of seasonal changes in electricity rates, same hereafter)11 has been positive, mainly due to the rise in international commodity prices. In detail, prices of """"goods sensitive to exchange rates and overseas commodity prices"""" have been on the rise due to the upsurge in prices of petroleum and coal products, although nonferrous metals have dropped marginally. Prices of """"other materials"""" have continued to increase mildly, notably in prices of chemical products and plastic products, mainly as a result of high material costs to date. Prices of """"others"""" have edged up, aided by the rise in processed foodstuffs. Prices of """"iron and steel and construction goods"""" have climbed moderately due to the rise in prices of scrap and waste. Prices of """"electric power, gas and water"""" have also increased. Meanwhile, prices of """"machinery"""" have been flat lately. Looking at domestic demand products as a whole including imports, prices of raw materials and of intermediate goods have risen, mainly in petroleum-related products. Final goods prices have been flat lately as a whole, since prices of domestic products have risen reflecting movements in prices of petroleum products and processed foodstuffs while prices of imports have fallen.

The year-on-year rate of change in corporate services prices (excluding external factors)12 has been around zero percent lately. Looking at recent developments by category, the year-on-year changes in prices of """"other services"""" have been positive since spring last year, reflecting improvements in supply-demand conditions as well as increases in costs such as labor costs. Moreover, prices of real estate services have continued to move up, assisted by the rise in office space rental against the background of improved supply-demand conditions of office spaces in the Tokyo metropolitan area. Prices of information services have been on an increasing trend, due to tightening supply-demand conditions, as a result of active software investment by firms, but they have been increasing at a somewhat slower pace lately. On the other hand, prices of advertising services have been somewhat weak, since firms have been cautious about increasing advertisement placements.

Meanwhile, prices of communications and broadcasting services have continued to fall, due to the reduction in cellular phone services charges. Prices of leasing and rental have also been declining, affected by the drop in prices of office automation equipment leasing. The year-on-year rate of increase in consumer prices (excluding fresh food, same hereafter) has been rising, due to the increase in prices of petroleum and food products. Looking at recent developments in more detail, prices of goods have increased at a faster pace on a year-on-year basis, chiefly in petroleum products and food products. Services prices have increased marginally, mainly due to the moderate rise in prices of """"eating out.""""

Domestic corporate goods prices are likely to continue increasing for the time being, primarily reflecting the rise in international commodity prices. The year-on-year rate of change in consumer prices is projected to follow a positive trend due to the rise in prices of petroleum products and food products in the short run and the positive output gap in the longer run.

Financial Development

As for interest rate developments in the money markets, the overnight call rate (uncollateralized) has been at around 0.5 percent. Regarding interest rates on term instruments, the Euroyen interest rate (TIBOR, 3-month) and FB rate (3-month) have been more or less flat on the whole . Interest rates on Euroyen futures have been essentially flat on the whole, although they dropped temporarily due to speculation over the Bank''s monetary policy. Yields on 10-year government bonds (newly issued 10-year JGB) have moved in line with long-term interest rates in the United States and Europe. They have recently been moving in the range of 1.4-1.5 percent. Yield spreads between corporate bonds and government bonds have been more or less flat on the whole.

Stock prices have remained weak in response to unstable U.S. and European stock price movements. The Nikkei 225 Stock Average is moving in the range of 13,000-14,000 yen. In the foreign exchange market, the yen''s exchange rate against the U.S. dollar has been more or less level. The yen is currently being traded in the range of 106-109 yen to the U.S. dollar.

Corporate Finance and Monetary Aggregates

Credit demand in the private sector has been more or less flat. Ample cash flow has slowed the increase in corporate demand for external funds. Regarding credit supply, private banks have remained accommodative in their loan provision. Related DIs of business surveys, which have been at their mid-1990s levels, indicate that firms have perceived the lending attitudes of financial institutions as accommodative. Nevertheless, those of small and medium enterprises have become slightly less accommodative. Lending rates have been at extremely low levels on the whole, whereas the average contracted interest rates on new loans and discounts, with the monthly fluctuations smoothed out, have been more or less unchanged. The amount outstanding of lending by private banks has continued to increase at a moderate pace. Its monthly average outstanding, after adjustment,14 grew by 1.1 percent in January on a year-on-year basis, compared to 0.8 percent in December and 1.3 percent in November.

In the corporate bond and CP markets, the issuing environment continues to be favorable as a whole. Issuance spreads on corporate bonds and CP issued by firms with low credit ratings have expanded slightly, while they have remained tight chiefly for firms with high credit ratings. The amount outstanding of CP and corporate bonds issued has been above the previous year''s level. It increased by 3.9 percent in January, on a year-on-year basis, compared to 3.8 percent in December and 4.5 percent in November. According to business surveys, the financial positions of firms have continued to be favorable.