for example, bolstering foreign direct investment by japanese businesses in pursuit of higher profitability which would result in a surplus in the income balance. the real gdp increased by 0. 6 percent annually on average in the 2000s while, the real gni excluding the terms of trade gains / losses, an indicator comparable to the real gdp, grew more rapidly by 0. 7 percent ( chart 22 ). of related matters, the ratio of japanese foreign direct investment is notably lower than that in other advanced countries. room for increasing the ratio would be substantial ( chart 23 ). increases in the income balance surplus may require a renewed focus on gni, which summarizes the income earned by japanese people. finally, businesses can better reallocate their capital in line with the aforementioned three options to raise productivity. i have already referred to the growth rate of japanese labor productivity, and now i point out that the level of labor productivity is lower than that in other advanced bis central bankers ’ speeches countries ( chart 24 ). put differently, per capita income could increase substantially if businesses reallocate their capital to be better aligned with the efficient allocations. v. concluding remarks i have explained how demographic changes affect the japanese economy through various channels. in retrospect, up until the global credit bubble - burst, both academics and policy makers did not fully appreciate the significance of a bubble - burst. the japanese experience of a bubble - burst tended to be underestimated as an idiosyncratic episode. likewise, bystanders ’ apprehension about the ongoing demographic changes in japan may, i fear, be falling short of the mark. my sense is that full apprehension of the consequences of rapid population aging, coupled with the low birth rate, is yet to be seen in light of the importance of the issue. economics has dealt with the issue of population, not to mention a few examples such as, petty ’ s political arithmetic or malthus ’ s an essay on the principle of population. for the sake of economic policy formulation, basic research on demographic changes and their policy implications is indispensable. i hope that this conference would help contribute to the accumulation of such research. thank you. references fujiki, hiroshi, naohisa hirakata and etsuro shioji, “ aging and household stockholdings : evidence from japanese household survey data, ” paper presented in this conference. katagiri, mitsuru, “ economic consequences of population aging in japan : effects through changes in

bank of japan ’ s march report of recent economic and financial developments1 bank of japan, 21 march 2001. * * * the bank ’ s view2 the recovery in japan ’ s economy has recently come to a pause, reflecting a decrease in exports. with regard to domestic demand, business fixed investment is increasing. the recovery in private consumption continues to be weak as a whole, but there are somewhat positive signs in some indicators. housing investment is virtually unchanged. public investment is bottoming out. while domestic demand remains steady, net exports ( real exports minus real imports ) are plummeting reflecting a sharp slowdown in overseas economies such as in the u. s. and east asia. mainly due to these developments, industrial production is starting to decline, and inventories of some materials and electronics parts are becoming excessive. corporate profits continue to improve but the pace is thought to be slowing significantly, particularly in the manufacturing industries, as exports and production are recently weakening. income conditions of households have not deteriorated but the effects of the decline in production are starting to be observed in new job offers and overtime working hours. as for the outlook, public investment is expected to start increasing with the advance in the implementation of the supplementary budget for fiscal 2000. net exports, however, are likely to continue decreasing for a while, as adjustments in overseas economies will take some time. leading indicators suggest that business fixed investment is likely to peak out gradually, although there will be a backlog of orders to be implemented for a while. in addition, the need for inventory adjustments, although not to a large extent, is heightening for some goods. thus, industrial production is expected to follow a declining trend. in these circumstances, the increase in corporate profits is likely to be subdued, and recoveries in household income and consumption are projected to be sluggish. overall, the economy will likely remain stagnant for some time. meanwhile, it is generally thought that overseas economies, particularly the u. s., will follow a gradual recovery trend from the latter half of 2001. in this case, together with the effects from the depreciation of the yen, exports are expected to underpin the economy once again. however, attention should still be paid to the possibility of a prolonging deceleration of overseas economies and risks of a negative impact on the economy induced by developments in foreign and domestic capital markets through corporate and household confidence. with regard to prices, import prices are rising, mainly reflecting the depre