The basic background for the expansion has been the high growth of the world economy, mainly of emerging economies, and the efforts of Japanese firms to restructure their businesses. Although an average of around 2 percent GDP growth between 2002 and 2007 does not seem remarkable, it was somewhat above the potential growth rate and has closed the output gap.
The recent rise in longer-term interest rates no doubt mirrors more favourable expectations for business activity; it is rather to be regarded as a rejection of the spectre of deflation than as a reflection of latent inflation expectations;  (2)  the keen competition on the factor and goods markets (due to globalisation and the launch of the euro) results, on the one hand, in a substantial growth of productivity but, on the other, also in strong downward price pressure in some sectors (in Germany, for instance, in the areas of telecommunications and electricity);  (3)  In view of the substantial unutilised capacity, the emerging revitalisation of business activity may well make non-inflationary growth possible for the production factors capital and labour alike.