costs to consumers. moreover, unit labor costs ( labor costs per unit of output ), although currently still declining, are likely to stop falling as wages begin to show a gradual upward trend. with these understandings, the year - on - year rate of change in the cpi ( excluding fresh food ) is likely to be around 0 percent in the short run, but is expected gradually to rise in the longer run. however, the pace of increase is likely to be moderate, given that the sensitivity of prices to changes in the output gap is declining due to factors such as economic globalization and deregulation. the rate of increase is projected to be around 0 percent in fiscal 2007 and around 0. 5 percent in fiscal 2008. ii. developments in overseas economies i have so far outlined the most likely projection. however, any kind of projection is subject to upside and downside risks. the first risk concerns developments in overseas economies. the global economy has been expanding strongly, registering high growth of around 5 percent since 2004. it is the first time since the early 1970s that the global economy has registered such high growth over a period of this length : until 2003, the growth rate was around 3 to 4 percent. the high growth of the global economy is to a great extent attributable to the fact that emerging economies have taken off one after another and have been increasing their presence in the global economy. in the u. s. economy, the correction in the housing market is continuing, but business fixed investment and private consumption continue to be on a moderate increasing trend although the pace of increase is decelerating. if the housing correction does not spread to other areas of the economy and the economic slowdown is only moderate, the global economy is likely to continue to expand steadily with the slowing of u. s. economic growth being offset by high growth in emerging economies such as the brics. this was also the consensus view among delegates at the g - 7 and international monetary fund meetings in october. as you all know, global financial markets have been volatile since the summer due to the heightening of concern about the u. s. subprime mortgage problem. this recent volatility in global financial markets could be regarded as laxity in risk evaluation in the continued benign global economic and financial environment being reversed by market forces of selfcorrection. however, if the correction in the u. s. housing market intensifies or the effects of swings in financial markets become unexpectedly widespread, private consumption

s basic thinking has been that ( 1 ) given the extremely accommodative financial conditions, the level of interest rates is to be raised if japan ’ s economy is to follow a path of sustainable growth under price stability, and ( 2 ) the pace of increase in interest rates should be determined in accordance with improvements in the economic and price situation without any predetermined view. so far, weak inflationary pressures have given the bank latitude in conducting monetary policy. the actual interest rate adjustments have therefore been slow based on a thorough assessment of the future path of the economy and prices and its likelihood, as well as both upside and downside risks. the bank ’ s basic thinking in this regard will remain the same in the conduct of future monetary policy. that is, while confirming that the japanese economy remains likely to follow a path of sustainable growth under price stability and assessing relevant upside and downside risk factors, the bank will adjust the level of interest rates gradually in accordance with improvements in the economic and price situation. we believe that, from the long - term perspective, the conduct of monetary policy in such a manner will prevent the risk of larger swings in economic activity and prices from materializing and will help to realize sustainable growth under price stability. conclusion japan ’ s economy is expanding moderately. corporate activity has been increasing due partly to strong exports, as can be seen here in the kansai region, and the positive influence is clearly spreading throughout the wider economy as evident in the declining unemployment rate. in order for japan ’ s economy to continue sustainable growth in the face of various challenges including the declining population, it is crucial for all regions and industries to persist with their efforts to innovate. since, along with the kanto and tokai regions, the kansai region is pulling japan ’ s economy forward, i fully anticipate that your originality and inventiveness will continue to play a leading role. as for the bank, we will continue to support your efforts through our conduct of monetary policy.