in international commodity prices and their impact on developments in economic activity and prices in the world. international commodity prices have been on an uptrend since the beginning of 2009. the pace of increase has accelerated especially in food prices since the autumn of 2010, and prices of some nonferrous metals and grains have been around or surpassed their historical highs recorded around the summer of 2008. the factors behind that are the rise in demand due to high growth in emerging and commodity - exporting economies and the decrease in grain supply owing to the adverse weather. the rise in commodity prices seems to have been also boosted by the fact that, amid the large - scale monetary easing in advanced economies, some investment funds have flowed into commodity future markets. at any rate, amid uncertainty about the middle east, attention should be paid to how international commodity prices will develop and how those developments will specifically affect economic activity and prices both in advanced and emerging economies. ii. developments in japan ’ s economy economic conditions and outlook based on the developments in the global economy, i will next talk about the developments in japan ’ s economy. to state the conclusion in advance, i am currently somewhat optimistic about a short - term economic outlook in the immediate future, but i have no choice but to have a cautious view on a medium - to long - term outlook. let me first talk about the current state of the economy. japan ’ s economy was picking up relatively clearly until around the autumn of 2010, but such improvement paused from the autumn to the end of 2010. as the growth in the global economy decelerated somewhat, exports became somewhat weak, especially of machinery and electronic parts to korea and taiwan, partly due to inventory adjustments in it - related goods such as personal computers. in addition, the plunge following the last - minute increase in demand for energy - efficient cars ahead of the expiration of subsidies has also affected the economy significantly. according to the data released at the beginning of last week, the real gdp growth rate for the october – december quarter of 2010 is minus 0. 3 percent on a quarter - on - quarter basis, the first negative growth in five quarters. the gdp data also proved that the improvement in japan ’ s economy was in a pause. economic indicators released after the turn of the year have suggested that japan ’ s economy appears to be gradually getting out of the pause. exports have started to resume an uptrend, as evidenced by high growth across almost all the regions and goods in december 2010. production,

demand for health and nursing care, as well as businesses such as tours targeting the elderly will increase. a key to winning competition is how firms will be able to respond to such substantial shift in demand for goods and services. in sum, the two changes in the environment indicate that the source of economic growth would expand substantially from advanced economies such as japan, the united states, and europe, to a broader world including emerging economies, and in terms of domestic markets, from markets especially for young and middle - aged generation to broader markets for a wider range of generations including the elderly. the decline in japan ’ s growth potential since the 1990s suggests that japanese firms were not able to sufficiently adapt to such changes in the environment. policy direction if we summarize such significant changes in the environment taking place in japan and their impact in that way, we can see that addressing the change in the demand structure will be a key to increasing the growth potential of japan ’ s economy. in that regard, it is critical to create an environment, in which firms can embark on new business areas with creative ideas, and smoothly transfer their management resources, such as personnel and capital, to those areas. if i point out some critical challenges, promoting deregulation remains to be one of those. there have been some areas, such as mobile phones and couriers whose markets have bis central bankers ’ speeches expanded due to deregulation. those often pointed out as promising areas are health and nursing care as well as education. while it is true that the institutional design in those areas is required to take account of safety and fairness, it is also the fact that regulations have shrunk room for originality and ingenuity of private firms, as seen in the difficulty in integrating kindergartens and nursery schools. in addition, population aging can provide new business opportunities if new demand is tapped through the collaboration between different areas such as tourism and health and nursing care. not to hamper the creation of a crossindustrial business model, efforts to constantly review the regulations are essential. moreover, in promoting creative corporate activity, it is important to create an environment that will ensure the smooth transfer of resources both in terms of personnel and of capital and funds. as for personnel, while there are industries with excess employment on one hand, there are industries, including nursing, which are short on staff on the other hand. to resolve such mismatch, it is necessary to further enhance the flexibility of the labor market by, for example,