s basic thinking has been that ( 1 ) given the extremely accommodative financial conditions, the level of interest rates is to be raised if japan ’ s economy is to follow a path of sustainable growth under price stability, and ( 2 ) the pace of increase in interest rates should be determined in accordance with improvements in the economic and price situation without any predetermined view. so far, weak inflationary pressures have given the bank latitude in conducting monetary policy. the actual interest rate adjustments have therefore been slow based on a thorough assessment of the future path of the economy and prices and its likelihood, as well as both upside and downside risks. the bank ’ s basic thinking in this regard will remain the same in the conduct of future monetary policy. that is, while confirming that the japanese economy remains likely to follow a path of sustainable growth under price stability and assessing relevant upside and downside risk factors, the bank will adjust the level of interest rates gradually in accordance with improvements in the economic and price situation. we believe that, from the long - term perspective, the conduct of monetary policy in such a manner will prevent the risk of larger swings in economic activity and prices from materializing and will help to realize sustainable growth under price stability. conclusion japan ’ s economy is expanding moderately. corporate activity has been increasing due partly to strong exports, as can be seen here in the kansai region, and the positive influence is clearly spreading throughout the wider economy as evident in the declining unemployment rate. in order for japan ’ s economy to continue sustainable growth in the face of various challenges including the declining population, it is crucial for all regions and industries to persist with their efforts to innovate. since, along with the kanto and tokai regions, the kansai region is pulling japan ’ s economy forward, i fully anticipate that your originality and inventiveness will continue to play a leading role. as for the bank, we will continue to support your efforts through our conduct of monetary policy.

in addition, in the case of japan, it seems that the rapid appreciation of the yen from the summer of last year has amplified downward pressure on exports that already existed due to a drop in final demand overseas. furthermore, in japan the share of domestically produced parts and materials is higher than in other countries such as the united states, and therefore a decrease in exports tends to adversely affect even industries that are not export - oriented. these industries are cutting production sharply to reduce excessive inventories, and therefore production is likely to continue decreasing for the time being. business fixed investment, particularly for expanding production capacity, is also likely to decrease for the time being, as firms have increasingly regarded their capital stock as excessive. labor market conditions are slackening, and developments warrant careful monitoring as adjustments in the labor market, in terms of both wages and the number of employees, might spread from manufacturers to nonmanufacturing firms. japanese households, whose savings ratio is high, own large amounts of financial assets, but they are not under pressure to make large - scale balance sheet adjustments, unlike their u. s. counterparts, which are suffering from falling land and home prices. however, the worsening employment and income situation has been gradually taking its toll, and this may exert additional downward pressure on private consumption. furthermore, attention should be paid to the possibility that recent unstable stock prices and the deteriorating employment situation may weaken consumer confidence further. prices are on a downward trend. in the summer of last year, cpi inflation, in terms of the year - on - year rate of change, rose to 2. 4 percent, its highest level since the first half of the 1990s. thereafter, however, it moderated reflecting declines in the prices of petroleum products, falling to 0 percent in january this year. it is projected to become negative soon with the increasing slackness evident in supply and demand conditions due to the severe economic situation. as for the outlook for the economy, the bank's baseline scenario projects that it will start recovering from the latter half of fiscal 2009, with price declines abating as global financial markets regain stability and overseas economies move out of their deceleration phase. however, a high level of uncertainty surrounds this scenario, involving some risks. japan's production is likely to continue decreasing for the time being, but it is also likely that the pace of the decrease will slow gradually as inventory adjustment pressures diminish. in this situation, whether final demand will start to recover rapidly when the