situation. the european economy also has continued to recover moderately, supported by an increase in private consumption. looking ahead, it is likely that advanced economies will continue to register firm growth. as for emerging economies, the chinese economy is likely to broadly follow a stable growth path as authorities proactively carry out both fiscal and financial measures to support economic activity, although the growth pace is expected to be somewhat slower than in the past. other emerging economies and commodity - exporting economies are expected to remain subdued for the time being, but growth rates are then likely to gradually increase, due mainly to the effects of the economic stimulus measures and the recovery in advanced economies. bis central bankers ’ speeches this is the baseline scenario for overseas economies, but risks are skewed to the downside. developments in emerging and commodity - exporting economies including china are still particularly uncertain. the fact that volatility in financial markets has not yet been dispelled also warrants attention. moreover, uncertainty over the timing of the next policy interest rate hike in the united states is affecting global financial markets, particularly emerging markets. in addition, there are various political risks such as the referendum in the united kingdom later this month regarding a so - called “ brexit ” – that is, whether britain should leave the european union ( eu ). going forward, the bank will need to continue to closely monitor whether these uncertainties surrounding overseas economies will either clear up or grow. corporate sector next, i will touch on japan ’ s economy. first, in the corporate sector, profits are at record levels ( chart 2 ). this is attributable to the fact that the real economy is improving and to factors such as the low crude oil prices and the past correction of the yen appreciation. the pace of improvement in corporate profits is expected to temporarily slow down, especially in the manufacturing sector, mainly because of the slowdown in overseas economies. however, corporate profits are projected to follow an improving trend, given that the past decline in crude oil prices will continue to have positive effects and the rise in demand at home and abroad is expected to raise sales volume growth. on the back of the high corporate profits, firms have maintained their positive stance toward fixed investment. figures on business fixed investment plans in the march 2016 tankan ( short - term economic survey of enterprises in japan ) show that investment by large firms is likely to have increased by about 10 percent on a year - on - year basis in fiscal 2015 and that by small

only about 1 percent ( chart 6 ). firms ’ roa exceeds their funding costs by a larger margin than ever before. this means that if a firm borrows money now to start a business, it will gain a return from the business that far exceeds the interest of the loan to pay. the highly accommodative financial conditions stimulate investment by firms in new businesses and projects. if firms increase their investment, the benefits will also spread to households in the form of increases in employment and wages. as monetary policy affects the entire economy in the way i just described, it is necessary to consider its effects from the perspective of the economy as a whole. meanwhile, with regard to the 2 percent price stability target, i am often asked why it is necessary that prices rise year after year. to answer this question, let me ask you to recall that more than 15 years of deflation have stymied the dynamics of the economy like a chronic disease. you therefore can see why moderate inflation is a good thing. under deflation, the economy fell into a vicious cycle in which a decline in prices led to a decrease in firms ’ sales and profits, which in turn resulted in wage restraint, a downturn in consumption, and a further decline in prices. if we can reverse the deflationary mindset and economic entities started behaving based on the premise that prices will rise moderately, the exact opposite would happen ; that is, a virtuous cycle would arise in which firms ’ sales and profits increase and wages also rise. what the bank is aiming to achieve is this kind of virtuous cycle. this will likely benefit a broad range of economic entities. when i provide this explanation, i am sometimes asked : if we try to achieve a rise in prices and prices do rise but wages do not, won ’ t this be bad for the economy? however, as i mentioned earlier, a rise in prices without a rise in wages is not something that normally happens. if firms ’ sales and profits grow through increases in the prices of goods and services, wages paid to workers will increase accordingly. in fact, past data show that the rate of increase in hourly wages and that in consumer prices have generally moved in tandem ( chart 7 ). the bank is aiming at a situation in which the economy expands on the basis of mild inflation accompanied by wage increases. after having experienced protracted deflation, it may be difficult to actually imagine such a situation now in japan. however, i