paths in turn influence the short - term fluctuations in the economy? for example, during the past three decades, we have seen a contrast in the cyclical and trend behaviors of real output between japan and the united states. from the 1970s to the mid - 1980s, the japanese economy moved in a less volatile manner around the higher trend growth path, compared with the us economy. from the mid - 1980s such an observation was reversed. the japanese economy moved in a more volatile manner around the lower trend growth path. indeed, the 1990s are often referred to as the “ lost decade ” for japan ’ s economy. average growth declined from the mid - three percent in the 1980s to the mid - one percent in the 1990s. the recoveries in the 1990s were not strong enough to lead to self - sustained growth. the recessions were deep and long enough to weaken the economic fundamentals. now the japanese economy is finally reaching the end of the long and painful path of the post - bubble adjustments. our economy has achieved significant progress in overcoming structural impediments. it is gradually gaining momentum for the restoration of sustained growth, and is showing more signs of recovery, spreading from manufacturing to non - manufacturing industries, from large to small firms, and from metropolitan to regional areas. yet we should remain vigilant. we cannot say for sure that the current recovery will be durable and strong enough to push the economy back to a sustained growth path. thus, the questions we should ask here are what makes the current economic upswing different from the past two recoveries, and whether such differences are sufficient for the economy to reach the sustained growth path. the japanese and u. s. experiences in the past three decades i mentioned before remind us of three things. first, such experiences confirm the importance of technological progress as a major engine of economic growth. second, at the same time, they suggest the possibility that some additional factors also play a key role in determining sustained economic growth, such as financial systems and globalization. third, they indicate that a low inflation environment emerges as a new challenge for sustained economic growth. now i will elaborate on some important but often - ignored or newly - emerged factors in achieving sustained economic growth. this year ’ s conference takes up such issues in a well - balanced manner. i am convinced we will be able to broaden and deepen our understanding of economic growth here. implications of globalization let me begin by focusing on the implications of globalization for economic growth. the increased global link

bank of japan ’ s august report of recent economic and financial developments1 bank of japan, communication, 17 august 1999. * * * the bank ’ s view2 japan ’ s economy, at present, has stopped deteriorating, and corporate sentiment has seen a slight improvement recently. however, clear signs of a self - sustained recovery in private demand have not been observed yet. with regard to final demand, business fixed investment has been on a downward trend. recovery in private consumption continues to be weak on the whole. net exports ( exports minus imports ) are sluggish at present due to an increase in imports. meanwhile, housing investment has continued to recover, and public works have been rising. reflecting such developments in final demand and continued progress in inventory adjustment, industrial production has stopped decreasing. in addition, corporate and consumer sentiment has seen an improvement due to the effects of measures taken to restore the stability of japan ’ s financial system and the continued monetary easing by the bank. the improvement in corporate sentiment, however, has not necessarily stimulated business activities, because firms strongly feel that they have excess capacity and employees and their profits remain weak. meanwhile, the improvement in consumer sentiment is underpinning household expenditure even under the worsening employment and income conditions, but is not strong enough to push up overall private consumption. as for the outlook, with the progress in inventory adjustment gradually paving the way for a recovery in production, improvements in the overall financial environment partly due to the monetary easing by the bank, along with a series of economic measures taken by the government, are expected to continue underpinning the economy. moreover, the recovery of overseas economies, especially of asian economies, is likely to have a positive impact on domestic production. nevertheless, under cautious sales plans, firms are implementing further restructuring to improve their profitability. although such corporate restructuring is expected to improve productivity, it is likely, in the short run, to reduce fixed investment and discourage household expenditure through the resulting deterioration in employment and income conditions. under such circumstances, it is still difficult to expect an immediate selfsustained recovery in private demand. overall economic developments require careful monitoring in consideration of the above points. it is also important to promote structural reform in order to assure the economy ’ s sustained growth in the medium term. with regard to prices, import prices continue to rise due to the increase in international commodity prices such as crude oil prices. domestic wholesale prices are leveling off due to the progress in inventory adjustment as well as an increase in prices