case. monetary policy is conducted with the aim of steering the japanese economy toward sustainable growth under price stability, and careful examination of the economy and prices is carried out with this aim in mind. the bank's basic view is that developments in financial markets, including the foreign exchange market, are factors that may influence economic activity and prices and it is in this capacity that they come to the attention of monetary policy. at the february mpm, the bank judged that for the economy and prices to follow a desirable path, we had reached an appropriate juncture to adjust the level of the interest rate. the operating target of the policy interest rate ( the uncollateralized overnight call rate ) was therefore raised from around 0. 25 percent to around 0. 5 percent. at the same time, the basic loan rate applicable under the complementary lending facility was raised from 0. 4 percent to 0. 75 percent, widening the interest rate differential between the basic loan rate and the operating target of the uncollateralized overnight call rate from 0. 15 percent to 0. 25 percent. the interest rate under the complementary lending facility serves as an upper limit on the overnight call rate. when the interest rate differential between the interest rate under the complementary lending facility and the operating target of the call rate is small, the call rate tends to diverge less from its target, but the free formation of market interest rates is restricted. in view of the stability of the call rate since the zero interest rate environment was brought to an end in july last year as well as the gradual recovery in the functioning of the money market, it was judged that some widening of the interest rate differential will not hamper smooth interest rate control. c. the conduct of monetary policy in the near future with regard to the future course of monetary policy, the bank intends, as previously stated, to " 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. " actual policy actions will be decided through careful analysis of the prospects for the economy and prices, and thorough discussion among policy board members at each mpm. as we have repeatedly stated, we do not have a predetermined schedule regarding the future policy actions. we have often been asked by market participants and the press whether this process of gradual interest rate adjustment should be regarded as " normalization. " the term " normalization, " however

business fixed investment and private consumption. in germany, the value - added tax rate was increased in january this year. this precipitated some last - minute rises in the consumption of certain products, which subsequently fell back again, and since january has also pushed up consumer prices to some extent ; however, it has not so far had a significant impact on either consumption or any other part of the economy. in china, both domestic and external demand continue to expand strongly, and the nies and asean economies continue to expand at a moderate pace on the whole. taking these developments into account, overseas economies as a whole are likely to continue to expand, with some possible slowdown in the u. s. economy offset by expansion elsewhere. with the plunge in the shanghai stock market at the end of february, stock prices worldwide declined substantially. in corporate bond markets in the united states and europe, for example, there was some reassessment of credit risk, as seen in wider credit spreads between government bonds and corporate bonds, especially those with low credit ratings. in foreign exchange markets, the yen appreciated against the u. s. dollar. in may - june 2006, there was a worldwide adjustment in financial markets, the so - called " global risk reduction, " but this was followed by an upturn in stock prices, a narrowing of credit spreads on corporate bonds, and a depreciation of the yen, all of which lasted up until the end of february. the most recent adjustments can be considered as an unwinding of investments made during this period. global investors'stance toward risk - taking may have become more assertive in the wake of their success in dealing with the global risk reduction as well as the relatively modest volatility in financial markets seen subsequently. this more assertive risk - taking behavior seems to have been modified in response to the plunge in chinese stock prices and the release of some weak data on the u. s. economy. as i have mentioned, there has been no significant change in the fundamentals of the global economy, but we will continue to pay close attention to developments in financial markets and any possible implications for economic activity. b. economic developments in japan against the background of the strong growth in overseas economies, japan's economy has been experiencing a sustained period of moderate expansion. the current economic expansion, which started in january 2002, is now in its sixth year. 1. developments in the corporate sector reflecting the expansion of overseas economies, japan's exports