that the balance between overseas and domestic production will be maintained. in addition, as investment was reduced to the level below depreciation following the lehman shock, this in turn is currently encouraging replacement investment. it can also be expected that firms will add investment spending to restore and reconstruct disaster - stricken facilities as well as to strengthen their earthquake resistance. given the situation i have described, it would be no surprise if domestic business fixed investment, compared with firms ’ cash flows or depreciation costs, became more apparent, and thus potential demand for investment is likely to have accumulated accordingly. if actual investment has been contained even though firms ’ investment appetite has not declined, this might mean that firms have been deferring investment decisions because of sluggish stock prices, the yen ’ s appreciation, the slowdown in the global economy stemming from the european debt problem, and related uncertainty about the future. let me repeat that firms ’ forward - looking investment in projects that would enhance value - added is a major driving force in order to increase the growth potential of the economy and improve productivity. it would also contribute to overcoming deflation. whether firms ’ investment spending will steadily increase – at a pace consistent with their growth expectations, both at home and abroad, in a balanced manner – is vital for japan ’ s economy to achieve sustainable growth and overcome deflation. turning to price developments, the year - on - year rate of decline in the cpi ( all items less fresh food ) slowed at a moderate pace in 2011, reflecting the improvement in the aggregate supply and demand balance, and has been hovering around 0 percent since the summer of 2011. the baseline scenario of the outlook for prices projects that the current situation is likely to continue for the time being, but the year - on - year rate of change in the cpi will gradually turn positive as the aggregate supply and demand balance improves. while crude oil prices have recently been surging due partly to the situation in iran, the price levels of other commodities have not necessarily risen compared with 2011. as this seems to be consistent with the currently still - weak recovery of the global economy, upward pressure on crude oil prices might be temporary due to supply - side factors. since crude oil prices might remain high depending on developments in geopolitical risk, careful monitoring is required. ii. monetary policy a. conduct of monetary policy let me now discuss the bank ’ s enhancement of monetary easing decided in february 2012. at the monetary policy meeting held on february 13 and 14,

u. s. financial markets have been favorable. although long - term interest rates have not moved in tandem with the rise in stock prices and have been more or less flat for some time, they have started to rise recently, gradually reflecting the improvement in economic activity. asian emerging economies, led by china, have been maintaining high growth rates, and medium - to long - term growth expectations also appear to be high. in china, however, exports and imports declined and the pace of increase in production slowed around the turn of the year, due to the effects of monetary tightening to contain the rise in prices as well as to stagnation in the european economies associated with the debt problem. consequently, exports have declined and the economies of the nies and the asean countries have decelerated somewhat as well. asian emerging economies are leading the global economy, and the bank ’ s baseline scenario is that these economies will gradually recover, supported by buoyant domestic demand. at the same time, attention should be paid to the possibility that european financial institutions ’ credit contraction will spill over to trade credits and prolong the current economic slowdown. in terms of achieving sound development of the global economy in the longer term, a key factor will be how to maintain the balance between economic growth and price stability. in this regard, china ’ s announcement that lowered the economic growth target from 8. 0 percent in 2011 to 7. 5 percent in 2012 was a favorable step toward achieving a soft landing of the economy, despite the weakened economic stimulus effect in the short term. at any rate, in 2012 uncertainty and changes in economic policy associated with the transition of leadership in china should be carefully monitored. c. economic activity and prices in japan one year has passed since japan ’ s economy experienced the great east japan earthquake. following the disaster, economic activity plunged due to the disruption of supply chains and constraints on electric power supply. thereafter, as a result of strenuous efforts by the parties concerned, japan ’ s economy began to recover in the july - september quarter of 2011. however, in the october - december quarter, the economy faced downward pressure as exports and production grew at a sluggish pace due to a slowdown in overseas economies – on the back of the european debt problem, monetary tightening in china, and the flooding in thailand – as well as the appreciation of the yen. the annualized quarter - on - quarter growth rate of real gdp on a seasonally adjusted basis in 2011 was minus 6.