cannot. these no doubt will sound familiar as the canadian economy has been going through a period of adjustment during which the challenges for many industries and their employees have become more intense than usual. moderate movements in the exchange rate topping the list of concerns are exchange rate movements. any significant upward or downward movement in the canadian dollar is virtually guaranteed to bring forth pleas for central bank action to, at least, moderate the movement and lessen its effects on the economy. we went through this in 1997 - 98, when the canadian dollar depreciated markedly in response to the decline in world demand and commodity prices. and since 2003, we have repeatedly been urged to deal with the reverse situation - that is, a sharp appreciation of our currency, primarily reflecting strong world demand and high prices for energy and other commodities. in response, we have stressed that movements in our currency are largely a reflection of market forces at work in the world environment in which canada operates. in other words, the changes that we have seen in recent years represent a global reality. we simply cannot wish them away. and they will continue, regardless of the level of our policy interest rate and regardless of whether we have a fixed or a floating exchange rate. monetary policy cannot change the reality of these developments. nor can it somehow eliminate the need for our economy to adjust to global forces and trends that are fundamental in nature. to be clear, this is emphatically not to say that, in setting policy, we won't take into account the effects that any adjustments related to global change - including the reallocation of resources across sectors are likely to have on the production capacity of our economy. nor does it say that monetary policy will not take into account any effects that global developments and relative price movements will have on aggregate demand for canadian products. indeed, before announcing our interest rate decisions eight times a year, we assess all of the factors that have implications for the balance of demand and supply in the economy, and thus for the conduct of monetary policy. exchange rate movements are among those factors. but i must clarify that the response of monetary policy to exchange rate movements depends on the reason for those movements. more importantly, it depends on the overall net effect that such movements and other developments are expected to have on aggregate demand in canada. in general, there are two types of exchange rate movement. the first reflects a direct real change in the demand for canadian products stemming from a strengthening ( or weakening ) of world economic activity and any associated

overnight call rate continues to move at around zero percent. longer - term interest rates remain steady at low levels. yields on long - term government bonds declined further until mid - june, as investors increased their demand for the bonds. after that, the yields rose sharply partly because the bonds were sold at a profit on a large scale. recently, they are moving at around 1. 0 percent. meanwhile, yield spreads between private bonds ( bank bonds and corporate bonds ) and government bonds continue to be at low levels. stock prices are recovering, reflecting a gradual improvement in market participants ’ view on the outlook for japan ’ s economy and foreign investors ’ active investment stance on japanese stocks. the nikkei 225 stock average is recently moving at the 9, 500 - 10, 000 yen level. in the foreign exchange market, the yen depreciated toward the end of the month, due mainly to an improvement in some u. s. economic indicators. after that, the yen rebounded reflecting further investment in japanese stocks by foreign investors, and is currently traded in the range of 117 - 119 yen to the u. s. dollar. with regard to corporate finance, private banks remain cautious in extending loans to firms with high credit risks, while they continue to be more active in extending loans to blue - chip companies. their lending attitudes seem to be becoming slightly more accommodative in areas such as interest margin charges. meanwhile, the lending attitudes of financial institutions as perceived by firms are improving somewhat, although small firms continue to perceive them as severe. in the corporate bond and cp markets, the issuing environment for firms with high credit ratings continues to be favorable on the whole, although some firms seem to be taking a wait - and - see stance in the corporate bond issuance market in view of the rise in long - term interest rates. credit demand in the private sector continues to follow a downtrend mainly because business fixed investment is at low levels and firms are continuously reducing their debts. amid these developments, private banks ’ lending continues to decline by about 2. 0 - 2. 5 percent on a year - on - year basis. the amount outstanding of corporate bonds and cp issued is slightly above the previous year ’ s level. meanwhile, according to business surveys, financial positions of firms are improving slightly, although those of small firms in particular remain severe. the year - on - year growth rate of the monetary base rose and is around 20 percent. the year - on - year growth rate of