has both advantages and disadvantages, and how they each materialize differs depending on the phase and time horizon. after considering all these factors, the bank has concluded that, in the current time of high uncertainty regarding the future prospects of overseas economies, due attention is necessary to the risk that the yen ’ s appreciation will dampen future growth through a decline in exports and corporate profits as well as a deterioration in business sentiment. this is the very reason that the bank has embarked on monetary easing measures twice since this summer. the most debated issue at present with regard to the yen ’ s appreciation is the possibility that japan ’ s firms will accelerate their shift to overseas production, which may result in a hollowing - out of domestic industries. the trend of a rising share of overseas production among japanese firms can be basically understood as a part of firms ’ growth strategy to place production sites near markets that are experiencing rising demand, against the backdrop of a global shift of growth centers toward emerging economies. having said that, the timing of this global shift is also affected by foreign exchange rate developments. as you may recall, in the phase of significant yen depreciation toward the middle of the 2000s, the profitability of domestic production improved dramatically and firms started to refocus on domestic production while pausing their shift to overseas production. however, as the aftershocks of the collapse of lehman brothers and impact of the sovereign debt problem in europe have persisted, the yen has stayed at a higher level than the period before these problems emerged. given this development, firms are returning to the strategy of shifting production overseas that they had been pursuing in response to the expansion of global markets. therefore, during this period of transition in business strategy, the pace at which production is shifted overseas will generally accelerate compared to the past average. during this period, if the pace of this shift increases excessively, it may be difficult to create replacement job opportunities at home at a similar pace. moreover, if core companies and factories with long - term competitiveness move overseas, they are less likely to return home even with a correction in the yen ’ s appreciation. therefore, as well as the risks that i have pointed out so far, the impact of the recent appreciation of the yen on japan ’ s economy warrants due attention. at the same time, the appreciation of the yen also has advantages, including lower import costs for energy and materials, which increases the purchasing power of firms and households. after the earthquake, the trade balance turned negative due

to the expansion of imports of crude oil and lng against the backdrop of the suspension of operation of nuclear power plants and an associated increase in electricity generated from thermal power. the yen ’ s appreciation has also worked to offset the negative impact of such drain of income to overseas. such advantages are not uniformly extended to all firms and industries. with regard to the impact on the national economy as a whole, it is also important to consider how bis central bankers ’ speeches to make use of such advantages to promote the development of new businesses and reform of the industrial structure. unfortunately, however, we have rarely seen such positive initiatives so far. iv. necessity to strengthen medium - to long - term growth potential let me now move on to the topic of strengthening the growth potential of japan ’ s economy, which i briefly touched upon earlier. i believe this is the most fundamental challenge currently facing japan ’ s economy. the growth rate can be broken down into the rate of growth in the number of workers and the rate of growth in gdp per worker, or productivity. the long - term downtrend in japan ’ s economic growth is determined by two factors : a decrease in the number of workers due to the rapid aging of the population and low productivity growth ( chart 9 ). with this in mind, what will happen in terms of the future growth rate? assuming that labor market participation by the elderly and female population remains unchanged, based on long - term projections of demographic trends, the rate of decline in the number of workers will accelerate further to 0. 6 percent in the 2010s and 1. 3 percent in the 2030s ( chart 10 ). the rate of growth in the number of workers and the rate of growth in productivity together constitute the economic growth rate. assuming that the productivity growth rate is around the average of the past 20 years, that is, around 1 percent, the annual rate of economic growth for the 2010s onward will ultimately remain between 0. 0 and 0. 5 percent on average and enter negative territory in the 2030s. given that such a situation can be clearly foreseen, we must do our utmost to improve it, even if only slightly. this means that in order to strengthen the economy ’ s medium - to longterm growth potential and thereby prevent it from entering a period of stagnation, it is necessary to both prepare a working environment that encourages an increase in labor market participation by elderly people and women and make efforts to enhance productivity growth. productivity growth is defined as the