Positive Outlook for the World Economy vs. Risk of Resource Prices Sustaining a "Bad" Increase

◆Japan’s economy is foreseen to move from consolidation to a stable growth path in Jan-Mar 2011, after which exports are expected to drive a recovery in line with the recovery of the world economy. The view forward is positive since driving forces behind growth will support the world economy without interruption in 2011 and 2012.

◆Both the economy and corporate profits are anticipated to move past their current lulls. While there is concern that profits will be squeezed by the surging cost of raw material imports ensuing from higher resource prices, it is not a major issue at the present moment. The current level of resource prices can be largely explained by real global demand. During similar periods in the past, recurring profit growth actually accelerated.

◆This outlook would change, however, should resource prices increase for speculative reasons rather than in accordance with actual demand. A risk for 2011 is such a development coming to the fore at any moment. Depending on where the excess liquidity arising from global monetary easing is directed, resource prices may sustain a “bad” increase, and our current positive economic outlook may need to be revised.