out. when considering the effects of the the modest growth of wages, despite increased demand for labor, can be attributed to the flexibility of the labor supply, witnessed for example in an increase in the rate of femaleparticipation in the labor force. fall in crude oil prices, we should note the consequential improvement in japan's terms of trade and concomitant decrease in the amount of wealth transferred to oil - producing countries, which will boost private consumption in japan by improving households'real income through higher corporate profits and lower prices. 2 iii. decision at the mpm in february based on the " new framework for the conduct of monetary policy " announced in march 2006, the bank examines future risks from two perspectives. the first perspective examines the prospects as well as risks for the economy and prices basically within a projection period of one and a half to two years. at the mpm held in february, it was judged that japan's economy " is likely to continue its moderate expansion with a virtuous circle of production, income, and spending in place. " it was also judged that although the year - on - year rate of change in the cpi ( excluding fresh food ) may register around zero in the short run, depending, for example, on developments in the prices of crude oil, it is likely to " increase as a trend " given the expected continuation of the economic expansion. the second perspective extends the horizon beyond that of the above forecasting period and takes into account various risks that would significantly impact the economy should they materialize, even though the probability of such materialization may be low. at the february mpm, it was noted that " [ i ] f expectation takes hold... that interest rates will remain low for a long time regardless of economic activity and prices, there is a possibility that sustained economic growth will be hampered by misallocation of funds and resources through excess financial and economic activities. " based on its assessments from these two perspectives, the bank has decided to change the guideline for its money market operations so as to encourage the uncollateralized overnight call rate to remain at around 0. 5 percent. at the same time, the basic loan rate applicable under the complementary lending facility ( the standby lending facility through which the bank will extend a loan at the request of a counterparty up to an amount not exceeding the value of that counterparty's collateral ) was set at 0. 75 percent. with respect to

in which investors focusing on the interest rate differential between japan and abroad favored the yen carry trade. recently, however, there has been some unwinding of this trade. although these adjustments seem so far to have been limited basically to technical corrections in position - taking by those who felt overexposed, careful attention should be paid to whether the higher volatility in asset prices may have some implications for investors'risk - taking behavior in the future. ii. developments in japan's economy against the background of the strong growth in overseas economies, japan's economy has been experiencing a sustained period of moderate expansion. the economy maintained a rate of growth of about 2 percent from fiscal 2003 to fiscal 2006, a pace which it seems likely to sustain during fiscal 2007. a. slow permeation of strength in the corporate sector through to the household sector the current economic expansion is now six years old, but partly because of the gradual pace of growth, it is not making itself felt by households to the same extent as in past economic expansions. in the corporate sector, however, corporate profits have been favorable and business fixed investment is growing at a rapid pace, especially among manufacturers. corporate profits and business fixed investment are expected to keep increasing steadily, and this suggests that the engine of the economic expansion remains intact. despite the strength in the corporate sector, the pace at which this positive influence has filtered through into the household sector has been slow. faced with intensifying global competition and greater exposure to the discipline of the capital market, corporate management has been increasing the emphasis it places on raising profitability. reflecting these factors, growth of wages has been modest. especially since summer 2006, the effects of the baby - boomers'retirement and of cuts in personnel expenses for local civil workers are exerting additional downward pressure on the growth of wages per person. the modest increase in wages seems also due to management's greater efforts to reduce fixed costs to cope with sharp rises in prices of crude oil and other materials from 2004 through fall 2006, and employees'preference for employment stability over a wage increase after their past experiences of a severe employment situation. with regard to the employment situation, the number of employees has continued to increase steadily at an annualized rate of slightly over 1 percent, and labor market conditions are gradually becoming tighter. the unemployment rate for women was 3. 8 percent in january 2007, lower than that for men ( 4. 1 percent ), and women's wages have been increasing steadily