sustained recovery are expected to continue. while the pace of improvement is likely to slow temporarily, partly due to a temporary slowdown of overseas economies and the waning effects of various demand - boosting policy measures, exports are likely to increase, reflecting the high growth in emerging economies such as in china, while business fixed investment and private consumption are expected to recover as corporate profits increase. as noted earlier, a downside risk that might necessitate revision of the above outlook is the growing possibility that the u. s. economy will see protracted low growth. were this to happen, the outlook for the world economy would have to be revised downward. the resulting decrease in exports would adversely affect japan ’ s economy and probably lead to increased risk aversion, thereby discouraging business fixed investment, new businesses, and household consumption. the deteriorating business and consumer sentiment could lead to prolonged sluggish economic activity. despite the manifest downside risks outlined above, the emerging economies have shown impressive growth. it is true that, for the present, the economies of some asian economies appear to be decelerating, mainly because of china ’ s economic slowdown. yet this means that the risk is declining that an overheating economy might hurt sustainable economic growth. this might be compared to “ speed control, ” conducted for a limited period to ensure a higher rate of growth over the long term. if this were the case, it would be an upside risk for japan ’ s economic outlook, given that japan is strengthening its ties with other asian countries. an upswing in these countries could partly offset the negative effects even if the u. s. economy experiences a period of low growth. d. effects of foreign exchange markets on japan ’ s economy next, in order to understand the effects foreign exchange markets have on japan ’ s economy, let me put the activities of foreign exchange markets in context. when prices of goods are stable or falling in a given country, the value of that nation ’ s currency is stable or rising and, other things being equal, the value of this particular currency should rise against other currencies. this is the basic idea of “ purchasing power parity. ” so, if we look at the purchasing power parity of the yen against the u. s. dollar ( the ratio between prices in japan and the united states ), we see that the yen has been appreciating fairly consistently against the dollar, reflecting the weakness in japanese prices relative to those in

japan ’ s economic recovery in the past was that it started with an increase in exports and production, thereby centering on the manufacturing sector. however, unlike the pattern of past recoveries, the major feature of the recovery this time is that it is led by the nonmanufacturing sector against the backdrop of firmness in domestic demand such as private consumption and public investment. that might be because, while consumption by senior citizens and reconstruction - related spending have been underpinning domestic demand, there also have been effects of various stimulus policy measures under “ abenomics ” and improvement in household sentiment on the back of high expectations for the current economic policy management, as well as favorable developments in financial markets. indeed, while exports and production remain short of the pre - lehman crisis levels, tertiary industry activity index – an indicator of the state of economic activity in the nonmanufacturing sector – has come close to the pre - lehman crisis level. a pick - up in business fixed investment also has taken place mainly in the non - manufacturing sector, as i mentioned earlier. the non - manufacturing sector requires more human resources than the manufacturing sector. at present, improvement in employment and income, mainly in the non - manufacturing sector, is supporting private consumption in a virtuous cycle. the virtuous circle from income to spending has been gradually taking hold, and this has supported resilience in domestic demand. such development is expected to continue. recent developments and outlook for overseas economies in this recovery, the resilience in domestic demand has been pronounced. exports are picking up, although they remain lackluster so far. in considering the future of japan ’ s economy, it is important that overseas economies pick up while domestic demand is resilient, and that the economy move to a phase led by domestic demand and external demand as a pair of wheels. let me now turn to the recent developments in overseas economies. overseas economies as a whole are gradually heading toward a pick - up. looking at respective regions, the u. s. economy is on a moderate recovery trend owing to firm private demand in the face of the fiscal drag. as for the fiscal situation, government debt increased significantly, mainly due to large - scale fiscal spending after the lehman crisis. in response, there have been moves toward fiscal consolidation, and austerity measures – including an expiration of various tax reductions and a start to budget sequestration – have been taken since the turn of the year. in the