is expected. first, it can be pointed out that there has been strong domestic demand from the beginning such as activation of consumption activity in accordance with the improvement in living standards and the needs for establishment of social infrastructure. a typical example is china. urbanization has been rapidly progressing in china, and the urban population in china has rapidly increased from 200 million to 600 million in the past 30 years. the number of the so - called “ million cities ” in japan, a country considered to have a high population concentration, was five in 1955, when the highgrowth period began, or twelve at present. in china, the number already reached 190 cities in 2008 and is expected to increase further in the future. progress in urbanization generates massive housing constructions as well as demand for establishing utilities including electricity, gas, and water. the fact that expressways, which correspond to the total road length of japan ’ s expressways, have been built almost annually since 2005 is also a typical example showing the great demand for infrastructure in china. therefore, emerging economies have, potentially, a capacity to achieve a relatively high growth rate. second, it can be pointed out that the large - scale accommodative monetary policies in advanced economies have led to an increase in capital inflows to emerging economies, thereby accelerated the economic expansion in emerging economies. meanwhile, in advanced economies, the pace of recovery is likely to remain moderate for the time being, since those economies are burdened by the balance sheet adjustments. according to the imf ’ s world economic outlook, the contribution to the global growth was 60 percent by advanced economies and around 30 to 40 percent by emerging and commodity - exporting economies until the 1980s and 1990s. the relationship between advanced and emerging and commodity - exporting economies was reversed and became 30 percent by advanced economies and 70 percent by the others in the 2000s, and the difference between the two groups of economies further widens in the projections for 2010 and 2011. since such marked difference in the pace of future economic recovery between advanced economies and emerging and commodity - exporting economies will have a significant implication from a viewpoint of achieving sustainable growth of the global economy, i will explain again later. uncertainty about the future of the global economy as i have just explained, a baseline scenario shared by, for example, the bank and international organizations, is that the global economy is likely to maintain the recovery trend, led mainly by emerging economies, and follow the sustainable growth path, but such projection is associated with

toshihiko fukui : overall review of the bank of japana€™s conduct of monetary policy statement by mr toshihiko fukui, governor of the bank of japan, concerning the bank's semiannual report on currency and monetary control, before the committee on financial affairs, house of representatives, tokyo, 11 january 2008. * * * introduction the bank of japan submitted its semiannual report on currency and monetary control for the first half of fiscal 2007 to the diet on december 11, 2007. i am pleased to have this opportunity to present an overall review of the bank's conduct of monetary policy. i. developments in japan's economy japan's economy is expanding moderately as a trend, although the pace of growth seems to be slowing mainly due to the drop in housing investment. housing investment has dropped substantially, affected by the revised building standard law coming into force. with higher materials prices, business sentiment has become somewhat cautious. exports, however, have continued to increase in a situation where overseas economies continue to expand with momentum being gained across a wide range of economies. business fixed investment has also continued to trend upward against the background of generally high corporate profits. inventories have been more or less in balance with shipments, and there has not been adjustment pressure on production capacity and labor. with regard to the household sector, although nominal wages per worker have been somewhat weak, employee income has been rising moderately with the increase in the number of employees. in this situation, private consumption has been firm. reflecting the rise in domestic and external demand, production has continued to increase. these developments seem to indicate that a virtuous circle of growth in production, income, and spending has basically remained in place. therefore, japan's economy is expected to continue expanding moderately, although for the time being the pace of growth is likely to slow in a situation where housing investment is likely to remain sluggish. global financial markets, meanwhile, have remained unsettled due to the u. s. subprime mortgage problem. the functioning of markets for securitized products has deteriorated significantly in the united states and europe, and stock markets have continued to be unstable worldwide. moreover, uncertainty regarding global economic developments, for example, downside risks to the u. s. economy, has been increasing. the bank considers it necessary to continue to monitor carefully developments in global financial markets and the global economy, as well as the effects from the rise in materials prices, such