the june tankan also showed that private firms ’ fixed investment was starting to pick up as evidenced by reasonably upbeat business fixed investment plans, which were revised upward from the march tankan, particularly in the manufacturing sector. with supply - side constraints easing further and production regaining traction, japan ’ s economy is expected to return to a moderate recovery path from the second half of fiscal 2011, backed by an increase in exports reflecting the improvement in overseas economic conditions and by a rise in demand for rebuilding. as for financial conditions, the overnight call rate has remained at an extremely low level, and the levels of firms ’ funding costs have also continued to be low. firms have continued to see financial institutions ’ lending attitudes as being on an improving trend. issuing conditions bis central bankers ’ speeches for cp have continued to be favorable. in the corporate bond market, although the views of issuers and investors continue to diverge on the terms of issuance of electric power company bonds, issuing conditions have been favorable as a whole, leading to an increased variety of corporate bond issuers. in these circumstances, firms have retained their recovered financial positions on the whole, albeit with the observed weakness at some firms, mainly small ones. on the price front, the year - on - year rate of change in the cpi ( excluding fresh food ) marked 0. 6 percent in april and may. the rate turned positive in april for the first time in two years and four months since december 2008. as for the outlook, the year - on - year rate of change in the cpi is expected to remain slightly positive. however, the bank recognizes that the yearon - year rate of increase in the cpi is likely to be revised downward with the base - year change scheduled for august 2011. based on these assessments, japan ’ s economy is expected to return to a sustainable growth path with price stability in the longer run. let me turn to risks to the outlook i have mentioned. regarding risks to the economic outlook, although concern over supply chains has subsided, the impact of the earthquake disaster on japan ’ s economy, especially through changes in household sentiment, still requires due attention. moreover, uncertainty has increased somewhat with regard to the longer - term outlook for electricity supply constraints beyond this summer. with regard to risks to overseas economies, the effects of balance - sheet adjustments on the u. s. economy and the possible consequences of the sovereign risk problems in europe continue to warrant attention. as for emerging and commodity - exporting economies, although many economies

; and second, providing support from the financial side. bis central bankers ’ speeches vi. stronger yen recent developments in foreign exchange rate and its background related to the current economic developments, i would now like to talk about the problem associated with the stronger yen, the fifth topic of my speech today. this is the issue that i have been asked about most frequently. looking at the foreign exchange developments after the lehman shock, the tide changed from a weaker yen up until then to a stronger yen. the effective exchange rate, weighted by trade volumes, shows that the yen and the swiss franc appreciated sharply while the euro depreciated ( chart 15 ). the u. s. dollar, while it appreciated temporarily after the lehman shock, has been depreciating moderately on the whole. meanwhile, the korean won depreciated sharply after the lehman shock and has remained at that depreciated level. in the foreign exchange market, a large volume of transactions takes place on a daily basis, and capital transactions account for 98 percent of total transactions ( chart 16 ). in the formation of foreign exchange rates, capital transactions play an important role. there are basically two types of capital flows behind the stronger yen following the lehman shock. the first is the reversal of yen carry trades that had actively taken place before the lehman shock. prior to the lehman shock, a very low interest rate was observed in japan, but now interest rates around the globe have also become extremely low. second, overseas investors have become more risk averse against the background of uncertainties about the outlook for the global economy as well as the european debt problem, and the yen has become a safe - haven currency that is more likely to be purchased under the current situation. in a case where the european debt problem raises urgent concerns, the currency of the country with abundant overseas assets – which is the outcome of the past current account surplus – is regarded as a safe - haven currency. effects of foreign exchange rate movements and responses a stronger yen creates a significant impact on the economy and prices. the way in which its effect is realized depends on economic conditions and the passage of events. at present, the stronger yen causes a decline in exports and corporate profits as well as deterioration in business sentiment ; hence, i recognize that the negative effect is dominant. indeed, in domestic demand driven sectors such as retail sales, the decline in import prices has been beneficial, and the stronger yen also reduces costs associated with energy - related imports under the current