foreign exchange market, the yen has been depreciating against the u. s. dollar since mid - 1995, and has recently moved at around ¥125 - 126. lending by private financial institutions has continued to be lackluster. growth in monetary aggregates has continued at around 3. 0 - 4. 0 per cent, but it has declined somewhat compared to summer 1996. 3. looking at individual components of final demand, public - sector investment is expected to follow a declining trend, although it may be supported for the time being by implementation of the government ’ s supplementary budget for fiscal 1996. while both exports and imports will expand reflecting the progress in international division of labor, net exports are expected to continue increasing owing partly to the yen ’ s depreciation since mid1995. with respect to the growth of domestic private demand, corporate profits of large manufacturing firms are improving steadily, helped partly by the positive effects on export prices and export volume stimulated by the yen ’ s depreciation. recovery in corporate profits has spread to nonmanufacturing firms which are closely related to business activities, as well as to small manufacturing firms. business fixed investment is thus expected to increase steadily in months ahead, mainly reflecting 1 ) this improvement in corporate profits, 2 ) the progress in capital stock adjustments, and 3 ) the rise in information - related investment. however, the pace of growth in business fixed investment is unlikely to accelerate significantly as balance - sheet adjustment pressures, for one, remain strong. with respect to the household sector, growth in compensation of employees has been accelerating, mainly in bonus payments and overtime payments. although the negative impact of the rise in the consumption tax rate is yet uncertain, consumer confidence will strengthen if growth continues to spread from the corporate sector to the household sector. personal consumption will thus continue to recover, despite the reversal in the stepped - up demand that occurred prior to the rise in the consumption tax rate. meanwhile, any drastic decline in housing investment is unlikely given present low interest rates, albeit with some reversal of the demand that peaked before the rise in the consumption tax rate. 4. turning to the outlook on prices, there is potential upward pressure on prices reflecting the yen ’ s depreciation, but they are expected to remain stable for some time. this is because, 1 ) crude oil prices have begun to weaken, 2 ) the recovery in domestic supply and demand conditions has been moderate, and 3 ) there remains a strong downward pressure on prices owing

to technological innovations, particularly in electrical machinery. however, price differentials between home and abroad have narrowed, and the general sense of weak supply and demand conditions for products has receded. thus, the bank will monitor more closely future developments in domestic and overseas supply and demand conditions, as well as in the foreign exchange market. 5. in sum, private demand has firmed in a virtuous cycle as growth in production is accompanied by growth in incomes, supported partly by the yen ’ s depreciation which augmented corporate profits and net exports. thus, although economic growth will slow down temporarily in the first half of fiscal 1997 with the reversal in the stepped - up demand ahead of the rise in the consumption tax, chances are improving that economic recovery turns out to be sustainable. however, the extent of the negative effects caused by the rise in the consumption tax rate, including the reversal in the stepped - up demand, has yet to be confirmed. also, balance - sheet adjustment pressures may continue to restrain the economic recovery. in these circumstances, promoting effective reforms of japan ’ s economic structure is an important ingredient in the efforts to strengthen the basis for recovery in private demand as well as the basis for a medium to long - term growth in japan ’ s economy.