If the severe electricity situation becomes protracted, it may become an incentive for firms, which aim at the optimal division of labor at home and abroad, to expand production and business overseas. Unless alternative domestic production is generated, Japan’s growth potential might decline. In relation to the first uncertainty about developments in overseas economies, let me touch on developments in foreign exchange markets.
While the yen has been weakening somewhat since February, it remains at a substantially high level compared with that prior to the Lehman shock. That is because global investors have become increasingly risk averse partly in response to the Lehman shock and the ensuing aggravated European debt problem, and have thus purchased assets including the yen, which were considered to be relatively safe.