With regard to the demand side, downward pressure on prices stemming from weak demand is markedly receding unlike in the first half of last year when Japan's economy was on the brink of falling into a deflationary spiral. On the other hand, downward pressure on prices arising from supply-side factors such as technological innovation, the streamlining of distribution channels, and deregulation is increasing.
The Bank continues to believe that the pace of economic expansion in that country will strengthen during the second half of 2001, supported by the substantial decline in interest rates, the moderation in energy prices, and the drawing to an end of the current inventory adjustment.