us yield curve as a sign of trouble ahead. while there are downside risks to any outlook, governing council prefers to look at a broader range of indicators. for one thing, the yield curve is not currently inverted, and is therefore not pointing to significant slowing. 12 besides that, the shape of the curve may not be a reliable signal in the current environment anyway. this is because longer - dated bond yields are being see e. engstrom and s. sharpe. “ ( don ’ t fear ) the yield curve, ” feds notes. washington : board of governors of the federal reserve system ( june 28, 2018 ). - 8distorted by a combination of central bank quantitative easing programs and strong private demand for long - dated safe assets. other indicators to look at include credit spreads, which remain narrow. 13 there may be some downside risk to our july outlook for the global economy coming from trade tensions, and cracks have appeared in certain emerging economies with financial vulnerabilities, but with limited spillovers to other countries. conclusion it is time for me to conclude. in terms of momentum in canada, we are encouraged that the economy is adjusting well to higher borrowing rates and tighter guidelines for mortgage financing. we are also pleased with the continued shift in the composition of growth toward exports and business investment. recent data reinforce governing council ’ s assessment that higher interest rates will be warranted to achieve the inflation target. we will continue to take a gradual approach, guided by incoming data. in particular, the bank continues to gauge the economy ’ s reaction to higher interest rates. the bank is also monitoring closely the course of nafta negotiations and other trade policy developments, and their impact on the inflation outlook. see m. leboeuf and d. hyun, “ is the excess bond premium a leading indicator of canadian economic activity? ” bank of canada staff analytical note no. 2018 - 4 ( march 2018 ).

positive on a year - on - year basis since this august, after a prolonged decrease. financing in capital markets through, for example, issuance of cp and corporate bonds has also been favorable for firms. in this situation, firms'perception of their financial positions has improved to the level of the early 1990s. such accommodative financial conditions seem to be contributing to the recent increases in housing investment as well as business fixed investment by small and medium - sized firms. these accommodative financial conditions are likely to support private demand. ii. pace of recovery japan's economy is likely to continue to expand against the background i have just explained. as i mentioned at the beginning of this speech, the pace, however, is expected to be moderate with less likelihood of acceleration. the main reason for this is the cautiousness of corporate behavior, which is expected to persist. it seems that firms have still not become confident about the future, having come through a protracted period of low economic growth following the bursting of the economic bubble. relative to the recordhigh level of profits that firms have been posting, the improvement in business sentiment, according to, for example, the tankan survey, is only moderate. although business fixed investment has been increasing, it still remains substantially below the level of cash flow, and firms are reluctant to aggressively increase fixed investment by raising the funds through bank loans or capital markets. while an increasing number of firms are making more efficient use of cash flow since they have nearly completed paying back their excess debt, they still appear cautious about accelerating inventory and capital investments in response to increases in sales and production. as a result of such corporate behavior, economic recovery is likely to remain moderate but at the same time excessive build - up of stocks is unlikely. the current economic recovery, which is already the third longest in the post - world war ii period, is likely to be sustained for this reason. iii. positive and negative deviations japan's economy is expected to continue to recover supported by strength in both the corporate and household sectors with adjustment pressures that have lingered since the bursting of the economic bubble dissipating. under these conditions, it is unlikely that the economy will fall into recession due to domestic factors, although with globalization, japan's economy could be adversely affected in the event of a major external shock, for example, a slowdown of the global economy. it is therefore necessary to pay attention to the path of the global economy, as