fallen by around 110 basis points. lending rates for very small loans, which can be taken as a proxy for loans to small and medium - sized enterprises ( smes ), have declined by around 180 basis points. the significant improvement in funding conditions for smes is especially encouraging as they provide two - thirds of total private sector employment in the euro area. the sharp reduction in bank lending rates has been accompanied by easier access to funding, as recent surveys have shown1 these positive developments have been supported by the second series of targeted longer - term refinancing operations, as a result of which banks are passing on the favourable funding conditions to their customers. moreover, these improvements are not limited to interest rates : bank lending volumes have also been gradually recovering since early 2014. market - based funding conditions, too, have improved significantly in response to the corporate sector purchase programme launched in june 2016. looking forward, we are confident that the ongoing economic expansion will continue to firm and broaden. incoming data, as well as improving consumer and business sentiment indicators, suggest that the cyclical recovery is gaining momentum. private consumption growth continues to be a key driver of the ongoing recovery, which is underpinned by improvements in labour 1 / 3 bis central bankers'speeches market conditions, with unemployment steadily falling despite a rise in participation. these developments increase households ’ real disposable income, which in turn boosts their spending. business investment is also expected to continue recovering amid support from better corporate profitability and the very favourable financing conditions. as for price developments, after hovering at levels well below 1 % for three years, with occasional dips into negative territory, euro area headline inflation edged higher towards the end of last year and reached 2 % in february. this upward movement of inflation mainly reflects increases in energy and food prices. underlying inflation – which relates more to domestic price pressures – continues to remain very subdued and has yet to show clear signs of trend inversion as unutilised resources still weigh on wage and price growth. for example, the annual rate of hicp inflation excluding food and energy has mostly remained below 1 % since late 2013. concerning the outlook for price developments, our latest staff macroeconomic projections suggest that the strong upward pressures on headline inflation from recent increases in energy and food price inflation are not expected to fundamentally change the medium - term outlook for price stability. in fact, while the staff projections indicate that the recent price pressures will cause a hump in the inflation path in 2017 and 2018

##ties. the most significant risk is, of course, the impact of the european sovereign debt crisis on our economy through its effects on international financial markets and the global economy. although the economic outlook is important, i have already discussed it on various occasions. today, instead, i would like to give my thoughts on the challenges facing japan ’ s economy and its central bank from a medium - to long - term perspective, as i believe the end of the year is good timing for doing so. i. japan ’ s economy during the past 15 years progress in globalization in order to understand the medium - to long - term challenges that lie ahead for japan ’ s economy, i will first compare how it is today to how it was back in 1995. i have chosen that particular year as a comparison point because of its similarities with this year, as in 1995 bis central bankers ’ speeches japan experienced the great hanshin - awaji earthquake ( or kobe earthquake as it is also known ) and an appreciation of the yen, which peaked that year at under 80 yen against the u. s. dollar. there have been many changes over the past 15 years. first, we saw further globalization of goods, capital, and people ( chart 2 ). for goods, global trade volume in real terms after excluding the effects of price fluctuations is expected to rise from an index level of 100 in 1995 to 253 by 2011. this implies that global trade volume continued to expand at an annualized rate of 6. 0 percent, a pace much faster than the real gdp growth rate of 3. 7 percent during the period. this increase was essentially caused by the end of the cold war and subsequent transition of regions worldwide to market economies. this increased opportunities for an international division of labor, which led to more optimal production by combining the technology and capital of advanced economies with the ample labor forces of emerging economies. emerging economies, particularly china, india, and brazil, grew rapidly in this process ( chart 3 ). for capital, the average amount of daily transactions in foreign exchange markets worldwide was 1. 5 trillion dollars as of 1998 – which is as far back as we can go in making such a comparison – and grew to 4 trillion dollars, corresponding to almost 20 times world gdp per day, in 2010 ( chart 2 ). for people, tourists traveling abroad have increased substantially from 530 million in 1995 to 940 million in 2011. the number of first - generation immigrants has also increased from 170 million in 1995 to 210 million in