the second half of 1996 ahead of the consumption tax hike. housing starts have since remained weak at around 1. 3 - 1. 4 million. regarding public - sector investment, the amount of public works contracted has followed a decreasing trend reflecting the restrained budget for fiscal 1997. real exports have continued to rise since the second quarter 1997 against the background of steady overseas demand and the yen ’ s depreciation to date. real imports, on the other hand, have remained virtually unchanged, partly owing to weak domestic demand. meanwhile, the impact of the turmoil in the east asian economies has been limited, although some exports to asia have declined. as a result, the real trade surplus has been increasing with some fluctuations. reflecting these developments, the nominal current - account surplus has also been expanding significantly since april 1997. industrial production remained virtually unchanged in the third quarter 1997. production in the fourth quarter is expected to decrease on the whole. this is because inventory adjustment which has derived from weak domestic sales, began to spread from consumer durables and construction - related goods to materials. meanwhile, the december tankan shows that the increasing trend in current profits is expected to continue for the large manufacturing firms ( excluding petroleum refinery ) in fiscal 1997, while those in the nonmanufacturing sector ( excluding electricity and gas ) are projected to decline. forecasts of current profit growth in both the manufacturing and nonmanufacturing sector have been revised downwards since the september survey. in these circumstances, the business confidence di for current conditions and on the outlook for principal firms in the manufacturing and nonmanufacturing sectors have both deteriorated. current profits of small firms in both the manufacturing and nonmanufacturing sector are expected to decline in fiscal 1997. the business confidence di has also deteriorated in most industries. with respect to labor market conditions, the unemployment rate has remained at a high level, and the ratio of job offers to job applications has recently eased. in october 1997, overtime working hours fell below the previous year ’ s level for the first time since august 1994, and the growth in employment and nominal wages has recently been slowing gradually, reflecting weak production. thus, the pace of recovery in employment and income conditions has slowed. prices remained stable on the whole. domestic wholesale prices have declined to some extent, partly owing to inventory adjustments. the corporate service prices on the whole have remained virtually unchanged from the previous year ’ s level. this is because supply and demand conditions in real estate rents and information service prices

, such changes in inflation expectations are contained by the central bank's commitment to aggressive tightening to control inflation. indeed, since the 1980s, many countries have developed monetary policy frameworks with a view to stabilizing inflation expectations. inflation targeting, of course, is a typical example. however, there are many issues that need to be better understood regarding inflation expectations. for example, market participants, firms, and households all have different expectations formation, given different perceptions of current inflation. in addition, these expectations are susceptible to the influence of their experience or psychological conditions, as well as to the central bank's communication. moreover, there is no guarantee that the way they are formed will remain stable over time. there is still much room for further research in this area, including in relation to central bank communication. new challenges next, i would like to mention two new challenges. the first is about the changing inflation and economic environment. from a long - term perspective, many countries, 2 / 4 bis - central bankers'speeches including japan, typically went through a period of great inflation and the subsequent great moderation, followed by the global financial crisis, and then faced a period of " low for long " before the pandemic. there is a view that the current ongoing global inflationary pressure will eventually subside and that a period of " low for long " will resume. on the other hand, there is also a view that the current period of high inflation will change people's views on prices, leading to a departure from " low for long. " we have seen higher levels of public and private debt as a result of the pandemic and the policy responses. in addition, people have once again been concerned about geopolitical risks since 2022, leading to a partial reversal of globalization. therefore, it may be difficult to deny the possibility that we are already in a new normal that is different from the period of " low for long. " the second challenge is about the changes in central banks themselves. in the period of " low for long, " many central banks faced the effective lower bound of policy rates, which is the traditional policy instrument, and have created various unconventional policy toolkits, including large - scale asset purchases and forward guidance. while a number of empirical studies support some effectiveness of these instruments in stimulating demand, it seems that the mechanisms at play are not fully understood even today. compared to conventional instruments, which have a long history, unconventional instruments have issues such