For the U.S. and European economies, downside risks prevail: the U.S. economy is burdened by balancesheet adjustments in the household sector, while in Europe sovereign risk problems are lingering in some peripheral countries such as Greece, and these problems may act to reduce economic activity through disturbances in financial markets.
On the other hand, emerging and commodity-exporting economies for the time being are likely to maintain relatively high growth led mainly by robust domestic demand. However, with concern increasing over overheating or inflation, there is also a risk that due to monetary tightening to address such concerns, activity in these economies might fall below expectations, which would pose a downside risk to Japan’s economy.