masaaki shirakawa : recent economic and financial developments in japan statement by mr masaaki shirakawa, 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 councillors, tokyo, 16 december 2008. * * * introduction the bank of japan submitted to the diet its semiannual report on currency and monetary control for the second half of fiscal 2007 on june 10, 2008 and that for the first half of fiscal 2008 on december 12, 2008. 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 exports have decreased due to the slowdown in overseas economies. with the deterioration in corporate profits and households'employment and income situation, domestic private demand, particularly business fixed investment and private consumption, has weakened. in sum, japan's economic activity has been increasingly sluggish. indicators of production, employment, and private consumption have all been weak. the results of the bank's december tankan ( short - term economic survey of enterprises in japan ), which were released yesterday, also clearly indicated the severity of economic conditions in terms of business sentiment and fixed investment plans. on the price front, the three - month rate of decrease in domestic corporate goods prices has been large, mainly due to the drop in international commodity prices. the year - on - year rate of increase in the cpi ( excluding fresh food ) is around 2 percent against the background of the increase in prices of energy and food. cpi inflation is expected to moderate reflecting the declines in the prices of petroleum products and the stabilization of food prices. regarding the financial side, investors have become increasingly risk averse reflecting disruptions in global financial markets. as a result, funding conditions in the cp and corporate bond markets have tightened, as indicated by the wider credit spreads on cp and corporate bonds and the difficulty faced by firms in issuing either. moreover, an increasing number of firms, not only small but also large ones, have reported that their financial positions are tight and lending attitudes of financial institutions are severe. thus, financial conditions in japan are rapidly becoming less accommodative on the whole. there are risks to the outlook for economic activity and prices. global financial markets remain under intense strain, although there has been some improvement in money markets in response to the various measures taken so far by governments and central banks.

of companies in the 21st century and urging the general public to boycott them shows not only a lack of responsibility, but also a lack of taste and common sense. i feel certain that our citizens know better and will continue to buy those products and services that suit them best, guided exclusively by their economic interest. the key principle of the late 18th century economy of comparative advantage explains that international trade is beneficial to all parties involved, and i guess that serbia of the 21st century wishes to benefit from international trade and finance, as well. i would also like to remind you on this occasion that today ’ s standard of living in serbia is largely based on foreign direct investments and access to foreign borrowing. hence, pensions are paid out regularly and on time, new jobs are created ( in the banking sector alone, the number of jobs is 50 % higher than at the onset of transition ), our citizens can take out mortgage loans, etc. in order to finance the current account deficit measuring 16 % of gdp in 2007, serbia needs foreign direct investments and fresh money. if we were to finance growth and development exclusively from our domestic accumulation, the volume of lending in 2007 would have been 4 to 5 times lower. it is true that the national bank of serbia can sustain macroeconomic stability in the short run by relying on monetary policy measures and interventions in the foreign exchange market. however, in the medium and long run, you do not make something out of nothing. i feel it is my duty to warn you that the ultimate costs of a significant decline in the level of fdis and restrictions on foreign borrowing will in the long - run be borne by our enterprises and citizens. however, i am sure it will not come to this, because it is not in serbia ’ s interest.