the united states and the authorities'measures to push forward with deleveraging. as for europe, production has declined since the second half of last year, mainly in germany, partly reflecting the tightening of gas emission regulations on automobiles within the european union ( eu ), and weaker exports to china also have been exerting downward pressure on the european economy. looking at japan's economy, exports - - mainly those of capital goods related to business fixed investment to china as well as the nies and the asean economies - - have been relatively weak since the turn of the year, affected by the slowdown in overseas economies ( chart 2 ). in addition, weakness in exports and related production is leading manufacturing firms to have cautious sentiment. on this point, since the kansai region, in particular, has a strong economic relationship with the asian economies, such as china, you may feel such developments. that said, domestic demand has remained firm. thus far, the effects of the slowdown in overseas economies do not seem to be exerting on domestic demand ( chart 3 ). business fixed investment has continued on an increasing trend, with corporate profits staying at high levels on the whole. according to the financial statements statistics of corporations by industry, quarterly ( fssc ), the ratio of current profits to sales for all industries and enterprises has remained at a historically high level. in this situation, business fixed investment on a gdp basis has maintained its uptrend, being positive for the april - june quarter on a quarter - on - quarter basis. turning to the household sector, private consumption has increased moderately, albeit with fluctuations. this is mainly attributable to the continued improvement in the employment and income situation ( chart 4 ). the active job openings - to - applicants ratio has been at a high level that exceeds the peak marked during the bubble period, and the unemployment rate has been in the range of 2. 0 - 2. 5 percent, remaining at around a low level that was observed during the bubble period. while labor market conditions have remained tight, employee income has been increasing. japan's economy thus has been on a moderate expanding trend, with a virtuous cycle from income to spending continuing to operate in both the corporate and household sectors, although exports have shown some weakness. with regard to the outlook, japan's economy is likely to continue on a moderate expanding trend, despite being affected by the slowdown in overseas economies for the time being. the keys to

much as 189 %. of course, we still have a long way to go to achieve a fully market - determined exchange rate, like for example switzerland, but we are on the right track and we are getting there fast! we need a ) a still deeper forex market, b ) buyers and sellers who engage in forward trade and have abandoned the " euro costs what it costs " principle, c ) exchange dealers who trade exclusively with banks. moreover, after the first two weeks this year when, as we had expected, demand for foreign currency went up substantially, the nbs intervened in the interbank foreign exchange market session on one day only. do we need another proof that the exchange rate is freely formed? last year's inflation of 6. 5 % in serbia matches the level achieved by its neighbours. to illustrate, by applying the foreign exchange regime of the currency board, bulgaria recorded 6. 5 % also, bosnia 6. 0 %, while hungary reached 6. 5 % and romania 4. 9 %. building on this, and primarily on the low inflation recorded in the final quarter of 2006, in 2007 the national bank of serbia will target the lower band of the 4 - 8 % core inflation corridor, set already in august 2006. let us now note the role of the monetary policy. last year was a key year for serbia, as it was finally recognized that monetary policy represents a significant and powerful tool whose importance cannot be overstated! this is a very important point to make, especially in serbia, where i can in all honesty say this is the first time a modern and proper monetary policy has been pursued! i find it quite normal and understandable that a person may come up to me in the streets of cacak, novi sad or belgrade and ask me why the national bank of serbia has only one objective and why this objective is “ to achieve and maintain price stability ” and not “ to achieve growth and development, higher employment rates, exports, etc, ” or why it is that the nbs needs to sterilize excess money and how it finances this sterilization. but when such questions are raised by “ economists ” and “ experts ” – well, that is a cause for much concern! i get the feeling that these people are trying to ignore a very valuable experience from the 1970s and 1980s. many experts seem to have slept through the past 20 years – but the economic science has been developing regardless! experiences from that time were well summarized at a conference