toshihiko fukui : overall review of the bank of japana€™s conduct of monetary policy statement by mr toshihiko fukui, governor of the bank of japan, concerning the bank's semiannual report on currency and monetary control, before the committee on financial affairs, house of councillors, tokyo, 31 october 2006. * * * introduction the bank of japan submitted its semiannual report on currency and monetary control for the second half of fiscal 2005 to the diet on june 9, 2006. i am pleased to have this opportunity to present an overall review of the bank's conduct of monetary policy. i. developments in japan's economy japan's economy is expanding moderately. exports have continued to increase due to the expansion of overseas economies. business fixed investment has also continued to increase against the background of high corporate profits and favorable business sentiment. the positive influence of the strength in the corporate sector has been feeding through into the household sector. while firms have been increasingly feeling a shortage of labor, the number of employees has been increasing steadily and wages have also been rising gradually. in this situation, private consumption has been on an increasing trend. with the rise in demand both at home and abroad, production has been increasing, and inventories have been more or less in balance with shipments. looking forward, japan's economy is likely to experience a sustained period of expansion with a virtuous circle of production, income, and spending in operation. there are various risks concerning future developments in japan's economy. for example, although international commodity prices, primarily crude oil prices, have declined since posting record highs this summer, they still remain at high levels. in this situation, whether the world economy can maintain sustainable growth while containing inflationary risks continues to warrant attention. on the price front, domestic corporate goods prices have been increasing recently. however, the pace of increase is expected to slow in the immediate future, due to the recent drop in international commodity prices. the year - on - year rate of change in the consumer price index ( cpi ; excluding fresh food ) has been on a positive trend, although retroactive revisions following the rebasing of the index caused the figure to be revised downward. the output gap is positive and is likely to widen at a moderate pace going forward. under these circumstances, the year - on - year rate of change in the cpi is projected to continue to follow a positive trend. as for financial conditions, the environment for corporate

have already been launched. these include, for example, plans for new industrial clusters in the prefecture. for example, pharma valley in the east of the prefecture aims to gather firms from the medical and health care industries, food science hills in the center of the prefecture aims to gather firms in industries related to functional foods contributing to the promotion of health, and photon valley in the west of the prefecture aims to gather firms from the optical and electronics industries. in addition, the inland frontier policy aiming at inviting enterprises to areas along the shin - tomei expressway, which is less susceptible to disaster risks, has been launched. now is also a golden opportunity to promote the attractiveness of shizuoka prefecture as a tourist destination, with its history and culture, to people at home and abroad. mt. fuji, the most notable sight in shizuoka prefecture, was registered as a world cultural heritage in june last year, and an event commemorating ieyasu tokugawa, who was the first shogun of bis central bankers ’ speeches the tokugawa government and had a close relationship with shizuoka prefecture, 400 years after his death, is scheduled for next year. moreover, the rugby world cup 2019 and the tokyo 2020 summer olympic and paralympic games will be major events that are expected to bring various business opportunities to the regional economy, including the use of game stadiums, training camps for players and parties concerned, and accommodation for spectators. i am looking forward to seeing how shizuoka prefecture will seize these opportunities. needless to say, for these opportunities to bear fruit, even stronger coordination among four groups of “ players ” is critical, namely, representatives of industries in the region, the administration that links parties concerned at home and abroad, academics and research institutions that provide the necessary technical seeds for the development of industries, and regional financial institutions to support these activities from the financial side. in this regard, the council on an industrial growth strategy for shizuoka prefecture, chaired by governor of shizuoka prefecture heita kawakatsu, was established in march this year, providing a platform for the aforementioned four players to develop growth strategies for the region in a unified fashion. i have learned that concrete measures toward achieving structural change are scheduled to be compiled in autumn this year. i strongly hope that an effective growth strategy will be formulated and initiatives will be implemented swiftly under the strong leadership of related parties. the bank of japan is striving to achieve stable growth of japan ’ s economy with qqe.