value - added services, and to make active fixed investment, with both being done across a wide range of areas such as wholesaling and retailing, construction and real estate, accommodations, and eating and drinking services. 3 recent developments in the underlying trend of labor productivity in the nonmanufacturing sector show a strong correlation with developments in private consumption ( chart 9 ). there is a possibility – although this interpretation should be taken with care – that the rise in productivity has been boosting prospects for a sustainable improvement in income, leading to higher growth in private consumption. the rise in labor productivity in the nonmanufacturing sector may also be exerting upward pressure on a broad range of prices through the growth in consumption ( chart 10 ). it can be considered that this rise has exerted a positive influence on the inflation rate through an improvement in the supply - demand balance, as its effects of increasing value - added and demand would more than offset its effects of generating price competition through cost cuts and subsequently exerting downward pressure on prices. 4 in the manufacturing sector, the rise in labor productivity in terms of value - added in japan has come to a pause. however, looking at the corporate sector, firms have been steadily enhancing their ability to make profits on a global basis. overseas, for example, they are increasing their production, fixed investment, and parts procurement. in the manufacturing sector, corporate profits have recently been growing rapidly, helped in part by developments in foreign exchange rates, and stock prices are firm, as are those in the nonmanufacturing sector ( charts 11 and 12 ). it should also be noted that japan ’ s net income from the rest of the world exceeds the historical peak ( chart 13 ). if the current account surplus is maintained see the october 2013 issue of the regional economic report released by the bank ( only the summary of the report is available in english ) and the report on the features of and background to business fixed investment in the nonmanufacturing sector of the chubu region released by the bank ’ s nagoya branch on october 18, 2013 ( available in japanese ). empirical studies also indicate that a rise in productivity will improve the supply - demand balance in a sustainable manner, thereby exerting positive effects on the inflation rate. for example, see ryuzo miyao, “ nihon no keiki hendou youin : jikeiretsu bunseki karano shiten ( sources for japan ’ s economic

take the necessary action at an early stage. prompt action is needed to preserve the growth momentum of the domestic demand - led economy in asia. iv. global monetary accommodation and domestic credit growth high economic growth is often associated with an increase in domestic credit. the current growth in domestic demand in asian economies is mainly driven by domestic structural factors such as the increase in the middle consumer class. but, it has also been reinforced by a combination of global monetary accommodation and the concomitant expansion in domestic credit. history tells us that bubbles often arise when people ’ s expectations become bullish due to the experience of continued high growth and domestic demand expansion. examples of such situations where domestic demand growth became excessive and ill - balanced are now all too familiar. we saw this in the bubble economy in japan, in the housing bubble in the united states, and in the overheating in real estate markets in peripheral european countries. these economies eventually fell into financial crises. and the symptoms were common in each case : a rapid increase in credit and an emergence of euphoria based on the belief that the country had entered a new phase. there is also the danger of an unsustainable increase in domestic credit reliant on short - term foreign borrowings. this is due to the lack of deep domestic financial markets. the current global accommodative financial conditions raise the possibility of unhealthy global capital flows into asian economies. such capital flows could result in the build - up of distortions and risks in the financial systems of these economies. for example, several economies have seen considerable increases in real estate prices partly due to foreign capital inflows. needless to say, if there were a substantial decline in real estate markets, nonperforming assets could pile up in the financial sector. such a scenario could hamper growth substantially and for a prolonged period, depending on the magnitude of the problem. to prevent such distortions and risks from building up, commercial banks and financial supervisory authorities need to enhance their credit risk management capacity. they need to instill a credit culture in which credit is proactively managed in response to changes in the environment. these actions could be effective throughout asian economies. another possible course is to use macroprudential policy. while discussions on macroprudential policy continue, particularly in the united states and europe, some asian economies have already gone ahead and introduced them. for instance, the bank of thailand has implemented policy measures such as ltv limits