golf fees, and educational costs, have been revised upward with the start of the new fiscal year. services prices are important indicators to confirm the general trend in prices, because their movements are largely influenced by changes in wages. prices of items other than services, such as personal effects and clothing, are also increasing gradually. ii. developments in overseas economies as i explained, japan's economy is likely to achieve sustainable growth under price stability. domestic private demand seems to be standing on a firm foundation given that structural adjustment pressures in the corporate sector and the financial system have dissipated. this directs our attention to developments in overseas economies as one major risk factor determining the outlook for japan's economy. in the u. s. economy, business fixed investment and production have been increasing steadily, but signs of deceleration in housing construction have finally been observed and the pace of increase in household spending and employment has been slowing. this trend suggests that interest rate raises by the federal reserve to date have been gradually taking effect. the increase in the core cpi has been accelerating slightly, reflecting the rise in utilization of labor and production capacity in addition to high crude oil prices. in this situation, inflationary concerns seem to be mounting. as for developments in the near future, important issues are whether economic deceleration in the united states will result in a soft landing, and whether inflationary concerns will be contained. in europe, the momentum for economic recovery has been increasing gradually, as is evident from increases in exports and production and the recovery in household spending. under these circumstances, the european central bank has been carefully raising its policy interest rate since 2005 in order to stave off the upward pressure on general prices from high crude oil prices and to sustain the economic expansion. the chinese economy has continued to show extremely high growth. monetary policy has been tightened recently so as to deal with the expansion in the money stock and bank lending as well as high growth in business fixed investment. whether overheating of economic activity can be contained through appropriate policy conduct is an important factor when monitoring developments not only in the chinese economy but also the world economy, and global price developments including developments in international commodity prices. in 2005, the world economy grew by nearly 5 percent. this expansion has been supported by the fact that a stable financial environment has been maintained by containing upward pressure on prices. a key factor in maintaining a stable financial environment is whether global inflationary concerns continue to be contained in the future. iii. developments in financial markets i would

prices increasing at a faster pace. meanwhile, given the high prices of grains such as wheat and soybeans as well as of crude oil and gold, possible shifts in international commodity prices may also influence the outlook for the global economy and the price situation. at the g - 7 financial ministers'and central bank governors'meeting held recently, the aforementioned assessment of economic and global financial market conditions was generally agreed. moreover, participants reaffirmed that they would address their domestic concerns within a cooperative framework so as to realize financial market stability and sustainable growth on a global basis. b. the current situation and the outlook for the japanese economy as for japan's economy, we expect that, although the pace of growth may remain slow for a while, the economy is likely to continue its sustained expansion under conditions of price stability since the virtuous circle of growth in production, income, and spending will remain basically intact. careful attention, however, should be paid to risk factors such as the aforementioned developments in overseas economies and global financial markets as well as the effects of high energy and materials prices. in the corporate sector, business sentiment is characterized by caution, because of the following factors. first, the revised building standard law, which came into force in june last year, has been pushing down housing investment significantly. second, the elevated prices of materials such as crude oil have been reducing profits, especially at small firms. and third, the subprime mortgage problems have been generating increased uncertainty about the future course of the world economy. however, since overseas economies as a whole continue to expand, exports to a broad range of regions, including emerging economies and oil producing countries, are increasing and their overall trend remains upward. in this situation, production to date has continued to increase. looking forward, however, production is expected to remain flat for a while, mainly because the accelerated production of automobiles to make up for the disruption caused by the niigata - ken chuetsu - oki earthquake in july 2007 is coming to an end. nevertheless, production is likely to resume its upward momentum, given that levels of inventories and shipments are essentially well in balance. business fixed investment is also likely to follow an uptrend, as firms are not under pressure to adjust production capacity or employment. let me now turn to developments in the household sector. nominal wages per worker have been somewhat weak, but moderate growth in employee income is continuing, supported by an increase in the number of employees. the gradual increase in