Japan's experience suggests the importance of assessing the sustainability of price stability over a fairly long period, which many central banks have emphasized in recent years.

As the new endogenous growth theory suggests, TFP growth is closely related to accumulation of the intangible capitals, such as human capital and research and development.

In fact, the recent increase in intra-firm trading enables businesses to shift their activities across borders smoothly, thereby strengthening the response of economic activity to exchange rate movements in the long run.

The standard growth theory tells us that economic growth in per capita basis comes from mainly two sources: capital deepening and total factor productivity growth, or TFP growth.

However, in spite of the general perception that monetary policy should be conducted so as to avert deflation, a central bank cannot lower interest rates below the zero lower bound.

The aging and decreasing population is a serious problem in many developed countries today. In Japan's case, these demographic changes are taking place at a more rapid pace than any other country has ever experienced.

The direct investment of Japanese businesses to East Asian economies accelerates the reallocation of their production bases. Consequently, between Japan and the other East Asian countries, both exports and imports are growing substantially.