, there are also risks involved in continued low interest rates. if the continuation of low interest rates leads to a substantial rise in long - term interest rates by raising inflation expectations or by generating expectations for a weak dollar, this may give rise to another problem, namely that the fiscal burden increases and in turn the need for adjustments in the government's balance - sheet arises. effects resulting from different sectors making balance - sheet adjustments the difference between the united states and japan in terms of what sectors have to or had to make balance - sheet adjustments can result in considerable differences not only in income transfer effects, but also in the adjustment process. in the case of japan, since it was mainly the corporate sector that had to make balance - sheet adjustments, progress in the adjustment process for the economy overall was achieved through an increase in exports owing to high global economic growth. however, at present, it is difficult for the united states to expect similar help from a substantial rise in its exports, because other advanced economies are also, to a greater or lesser extent, undergoing balance - sheet adjustments. an additional problem is that employees'income has declined more substantially than in previous recessions in the united states. while this may help the recovery in corporate profits, it at the same time entails the risk of a delay in balance - sheet adjustments by households. having said that, i must hastily add that there are elements in the structure of the u. s. economy that will encourage rapid progress in balance - sheet adjustments. the size of necessary balance - sheet adjustments depends on the size of the excess in supply capacity in the overall economy relative to the long - term equilibrium growth rate – that is, the potential growth rate. if expectations for economic growth are high, pressures for balance - sheet adjustments will be small. in this context, the united states has the significant advantage of having a flexible economic structure. if labor and capital shift swiftly from low - productivity sectors to high - productivity sectors, this should sustain high productivity growth in the economy overall. in contrast, reflecting population aging and a falling birth rate, the growth rate of japan's working - age population first declined and then turned negative during the 1990s. moreover, labor and capital mobility was relatively low, which was partly responsible for the gradual decline in productivity growth in the economy overall. as a result, japan's potential growth rate after the bubble burst declined, which protracted the duration of balance sheet adjustments. iii. balance - sheet adjustments and the global economy lastly

toshihiko fukui : the outlook for japan's economy and the conduct of monetary policy summary of a speech by mr toshihiko fukui, governor of the bank of japan, at the kisaragi - kai meeting, tokyo, 7 november 2006. * * * introduction at the monetary policy meetings at the end of april and october, the policy board of the bank of japan approves the text of the outlook for economic activity and prices, or the outlook report as we call it for short, and makes it public. today, i would like to discuss the bank's view on the current state of and outlook for the domestic economy and overseas economies as well as the bank's thinking behind its conduct of monetary policy, with reference to the october 2006 outlook report, which was released last week. i. developments in overseas economies let me first touch upon recent developments in the global economy. in the united states, deceleration in the pace of economic expansion is becoming clearer, as seen, for example, in the decrease in housing investment. however, business fixed investment and production continue to increase, and the pace of deceleration in private consumption has been moderate so far. meanwhile, in the euro area, the momentum of economic recovery is becoming more evident. the increases in production and the recovery in corporate profits observed so far have contributed to an improvement in the employment situation and increases in business fixed investment. in china, strong expansion in both domestic and external demand is continuing. the rate of growth in fixed asset investment remains high, although the pace of growth has been slowing slightly as a result of measures taken by the chinese government and the people's bank of china to contain the overheating of the economy. oil - producing countries, such as those of the middle east, continue to experience an economic boom supported partly by the significant improvement in the external balance resulting from the rises in crude oil prices. other emerging economies also continue to expand. thus, the global economy as a whole continues to expand strongly, with the slowing growth in the u. s. economy being offset by high growth in other economies. the global economy is expected to continue expanding steadily across a broader range of regions. according to the international monetary fund ( imf ), the global economy has registered high growth rates of around 5 percent for two consecutive years : 5. 3 percent in 2004 and 4. 9 percent in 2005. the global economy is expected to continue expanding at around the same pace,