strictly. given that financial conditions continue to be extremely accommodative, however, attention should be paid to the risk of a further acceleration of firms'investment leading to an excessive build - up of capital stock. whatever the case, the bank will further examine developments in the corporate sector based on data such as the upcoming december tankan. the third important factor is the extent to which the positive influence of the strength in the corporate sector continues to feed through into the household sector. the number of employees has been rising at an annual rate of 1. 0 - 2. 0 percent driven by the strength in corporate activity. looking at developments in wages per worker, while regular payments have been flat year on year, special payments and overtime payments continue to rise, and as a result wages per worker have been rising moderately. in this situation, private consumption, especially outlays for services and durable consumer goods, continues to trend upward. the preliminary estimates of real gdp for the julyseptember quarter indicated a decrease in private consumption by 0. 7 percent on a quarter - on - quarter basis, but this seems to have been attributable to the substantial decline in consumer spending reported in the family income and expenditure survey, which provides the basic statistics for consumer spending. it should be noted that figures in the family income and expenditure survey were considerably weaker than sales statistics and other statistics related to consumption. still, even allowing for this, private consumption was somewhat weak in the july - september quarter, and therefore the bank will watch closely developments in private consumption from the autumn onward so as to check whether this weakness was due to temporary factors, such as unfavorable weather and the tax rise in tobacco products. lastly, in relation to this point, developments in wages and prices are important factors that need to be watched closely. the bank expects the year - on - year rate of increase in the consumer price index ( cpi ; excluding fresh food, on a nationwide basis ) to rise gradually with the output gap remaining positive and expanding at a moderate pace while downward pressure from declining unit labor costs ( labor costs per unit of output ) weakens. if, in contrast with past experience, productivity keeps rising with wage increases lagging behind in spite of the prolonged economic expansion, there may be no upward shift in the inflation rate. despite the steady tightening of labor market conditions, the rate of increase in wages has remained moderate so far because, while employers faced with intensified global competition are maintaining their restraint on

labor costs, employees, having experienced a severe employment situation, continue to prefer stable employment to a wage increase. although the population of those 15 years old and over has been leveling off, the number of employees has been increasing steadily. if the number of employees keeps increasing in line with the continuing economic expansion, a further tightening of labor market conditions will become inevitable. in this situation, it is natural to assume that upward pressure on wages including regular payments will increase gradually. however, since the point at which this will happen is not clear, developments in wages and the underlying trend in prices continue to require close monitoring. ii. conduct of monetary policy i would like to touch on the bank's thinking regarding the conduct of monetary policy based on the assessment of economic activity and prices i have just referred to. with regard to the future course of monetary policy, as long as economic activity and prices are expected to develop in line with the bank's projection in the outlook report, the bank will adjust the level of interest rates gradually in the light of developments in economic activity and prices, while maintaining the accommodative financial conditions ensuing from very low interest rates for some time. as i have stated repeatedly, the adjustment process will proceed gradually. this will avoid impeding the expansion of japan's economy, and will instead facilitate the realization of sustainable economic expansion. the specific timing of the move will be decided based on careful assessment of developments in economic activity and prices and thorough discussion of the issue among members at each monetary policy meeting. in making such decisions, the bank will carefully examine individual economic indicators as well as other relevant information in light of the mechanisms underlying economic activity and prices indicated in the october outlook report and assess whether economic activity and prices will develop in line with the bank's projection. iii. issues facing japan's financial system next, let me turn to japan's financial system. japanese financial institutions have finally overcome the nonperforming - loan ( npl ) problem they had been wrestling with since the bursting of the asset price bubble in the 1990s. in addition, the capital base of japanese financial institutions has strengthened and japan's financial system has regained its stability. in such circumstances, financial institutions are ever more focused on developing and offering a wider range of financial services closely tailored to customer needs. for example, banks have increased the variety of financial products offered over the counter, such as investment trusts and private pension policies in addition to conventional bank deposits, and sales of such