with inventory levels high, the correction in the housing market is expected to continue for a while. banks are becoming increasingly cautious in extending loans in view of disruptions in financial markets due to subprime mortgage problems. nevertheless, to date, other parts of the economy seem not to have been harmed significantly, and private consumption and business fixed investment are continuing their moderate upward trend, although the pace of increase is decelerating. employment has also continued increasing. given these developments, it seems likely that the u. s. economy will register relatively low growth rates in the short run but will eventually realize a soft landing and move toward sustainable growth. however, if the correction in the housing market intensifies or the negative effects of disruptions in financial markets become unexpectedly widespread, private consumption and business fixed investment may fall below expectations through negative wealth effects, credit tightening, and deterioration in business and consumer sentiment, thereby leading to further deceleration in u. s. economic growth. meanwhile, the european economy has continued to expand, but the possible adverse effects on financial conditions of global financial market disruptions may pose a downside risk. if downside risks related to the u. s. and european economies were to materialize and have significant adverse effects, growth in other parts of the world may be hampered and this could cause global economic growth to be weaker than expected. at the same time, attention should also be paid to the risk of inflation, since the world economy, taken as a whole, has been expanding at a rapid pace. in the united states, underlying inflationary pressures do not seem to have subsided, reflecting continued high levels of resource utilization as well as developments in crude oil prices. in china, with signs of overheating, especially in fixed asset investment, economic growth and inflation may exceed expectations. meanwhile, given the currently elevated prices of crude oil and grains such as wheat and soybeans, possible shifts in international commodity prices may also influence the outlook for the global economy and the price situation. in global financial markets, disruptions due to subprime mortgage problems have continued to be observed. in the united states and europe, the functioning of markets for securitized products has deteriorated significantly, while money markets are still in the process of recuperating. stock prices and foreign exchange rates have been unstable across the world. the recent volatility in global financial markets seems to reflect a reversal of the previous laxity in risk evaluation that had developed during the long period of

have provided consumers with an incentive to visit retail stores and encouraged them to purchase products to which the stimulus measures do not apply, such as dvd recorders that are compatible with flat - panel tvs and the latest home cleaning robots. this increase in spending on durable consumer goods has had a positive effect on the economy by increasing production. in sum, japan ’ s economy has been supported by two major engines of growth, namely, the improvement in overseas economic conditions and the government ’ s economic stimulus measures favoring environment - friendly products. however, because the recovery remains weak in areas that have not directly benefited from these developments, many people have yet to feel that the economy overall is recovering. moreover, although japan ’ s economy enjoyed relatively high growth of around 5 percent at an annualized rate from the end of 2009 through the beginning of 2010, the level of economic activity remains lower than before the lehman shock. it is, thus, too early to say that a self - sustaining upturn in domestic private demand is fuelling a robust recovery. b. the economic outlook next, i will talk about the outlook for japan ’ s economy. the effects of the two factors that have so far been the engines of economic growth are likely to weaken. specifically, overseas economies, including those that currently are growing at a rapid pace, seem likely to slow to more steady and sustainable rates of growth as the effects of inventory restocking and stimulus measures abate. the uptrend in japan ’ s exports is expected to continue, but the pace of increase is likely to moderate gradually. durable goods consumption is expected to fall temporarily in reaction to the termination of the government ’ s economic stimulus measures favoring energy - efficient products : subsidies for purchases of environment - friendly cars expire at the end of september, while the eco - point system for electrical appliances expires at the end of december. new factors should be taken into account, however. for example, the government ’ s child allowances, which started in june, are expected to help support private consumption. moreover, business fixed investment and household income are likely to pick up, reflecting an improvement in the capacity utilization rate and in corporate profits. supported by these factors, japan ’ s economy should assume a moderate recovery trend. the outlook i just presented, however, is subject to various upside and downside risks. one upside risk is that growth in emerging and commodity - exporting economies might accelerate. recently, a growing number of emerging and commodity - export