Still, the overall trend in the financial markets over the past several months clearly indicates that market participants have a cautious outlook on the economy, as shown by the slowdown in growth or even a decline in stock prices since autumn 1996, and by the concurrent decline in long-term interest rates.
Cautiousness on the part of the market participants reflects the fact that they are strongly aware of the following three issues: (1) effects of the anticipated fiscal tightening in the next fiscal year; (2) structural adjustment pressures facing Japanese industry; and (3) balance-sheet adjustment of firms and the nonperforming- loan problem of financial institutions, both of which are burdens created by the economic “bubble” and its burst.