Tadao Noda: My answers to the frequently asked questions regarding
monetary policy
Speech by Mr Tadao Noda, Member of the Policy Board of the Bank of Japan, at a meeting
with business leaders, Shiga, 4 March 2010.
* * *
Introduction
I was appointed as a member of the Policy Board of the Bank of Japan in June 2006 after
having worked mostly at a bank and also at firms in the private sector, for a total of 37 years.
Thus, my background does not make me a central banker in the strictest sense. However,
since my appointment as a full-time Bank officer, I am able to draw on my experience in the
private sector in day-to-day deliberations and discussions on monetary policy and the Bank's
operations.
Today, in this speech, I will present my views by means of answering frequently asked
questions (FAQs) about economic and financial developments and the conduct of monetary
policy. Broadly speaking, I will discuss the following three FAQs.
I. Where is Japan's economy heading?
II. How is the Bank's monetary policy conducted?
III. What is the cause of, and remedy for, the issue of deflation?
I. The outlook for Japan's economy: where is it heading?
I will first discuss where Japan's economy is heading.
A. The current situation: the economy has been picking up, but the momentum
to support self-sustained recovery is still weak
Japan's real GDP growth rate was in the range of 2-3 percent from fiscal 2003 to fiscal 2006,
but dropped to 1.8 percent in fiscal 2007. In fiscal 2008, economic conditions deteriorated
substantially and the economy registered negative growth of 3.7 percent. After the failure of
Lehman Brothers, extreme cautiousness spread in many financial markets and the flow of
funds necessary for economic activity contracted, rapidly reducing global demand. Demand
in Japan fell sharply, mainly in leading industries - notably automobiles, electronic
machinery, and general machinery - and the economy was affected more heavily by the
global financial crisis than that of the United States, where the crisis started.
Since the beginning of fiscal 2009, Japan's economy has been picking up, as shown by the
relatively large growth in the real GDP growth rate on a quarter-on-quarter basis for two
quarters - the April-June and October-December quarters - although it registered 0 percent
growth for the July-September quarter. Exports have been increasing due to the
improvement in overseas economies. Private consumption has also been picking up, mainly
due to the strong sales of some durable goods, namely automobiles and electrical
appliances, which have been supported by the government's economic stimulus measures
that favor energy-efficient products.
Regarding the outlook for Japan's economy, it is expected to follow a sustainable recovery
path reflecting improvement in overseas economies, although the recovery may not be
smooth.
The world economy decelerated significantly following the failure of Lehman Brothers in
September 2008. Currently, however, economic conditions around the world have generally
continued to recover moderately due to the effects of economic stimulus measures by
governments and inventory restocking. The U.S. and European economies remain in the
early stages of recovery, but the pace continues to be moderate due to prolonged
balancesheet adjustments.1 However, economies in Asia, including China, have continued to grow at
a relatively rapid pace, in line with the improvement in domestic demand. The world economy
as a whole is expected to continue recovering moderately.2 Japan's exports are likely to
continue increasing, reflecting these economic conditions overseas.3
It should be remembered, however, that the situation provides little grounds for optimism
because the level of economic activity remains low. Although exports and production have
continued to increase, their levels in the January-March quarter of 2010, the most recent
quarter, were 16 percent below their peak levels reached in the January-March quarter of
2008, and the real GDP growth rate in the October-December quarter of 2009 was also
6 percent below its peak.4 The low level of economic activity indicates that the levels of firms'
profits and production are low and that firms consider their capital stock and employment to
be excessive. Unfortunately, under these circumstances, firms need to be cautious with
respect to increasing their business fixed investment and employment. Private consumption,
excluding durable goods consumption that has been supported by the effects of policy
measures, is also likely to remain sluggish amid the severe employment and income
situation. In other words, the momentum for self-sustaining recovery in domestic private
demand is still weak.
Let me explain the view of the Bank's Policy Board regarding the economic outlook as of
January 2010. The median of the seven Policy Board members' forecasts for real GDP
growth was minus 2.5 percent for fiscal 2009, 1.3 percent for fiscal 2010, and 2.1 percent for
fiscal 2011. In other words, the Bank's baseline scenario projects that after two consecutive
years of negative growth in fiscal 2008 and 2009, the economy will return to positive growth
from fiscal 2010 to fiscal 2011.5 If we regard the level of GDP at its most recent peak marked
in fiscal 2007 as 100, then the level of GDP is likely to be 94 in fiscal 2009, 95 in fiscal 2010,
and still only 97 in fiscal 2011.
1
Global structural adjustments, rather than a passing phase of a regular business cycle, lie behind the current
global economic downturn. During the worldwide boom after 2002, various imbalances or excesses were
accumulated on a global scale, and the difficulties in adjusting these imbalances are currently stifling the
global economic recovery. For more details, see the speech "Recent Economic and Financial Developments
and the Conduct of Monetary Policy" I delivered at a meeting with business leaders in Nagano in July 2009, a
summary of which is available on the Bank's web site.
2
According to the World Economic Outlook released by the International Monetary Fund (IMF) in January 2010,
the year-on-year growth rate of the world economy decelerated to 3.0 percent in 2008, from much higher rates
of around 5 percent a year between 2002 and 2007. Although the growth rate plunged to minus 0.8 percent in
2009, the largest negative growth since World War II, it is projected to recover to a positive rate of 3.9 percent
in 2010 and 4.3 in 2011.
3
Japan's exports depend on the situation in overseas economies. As mentioned later, it is highly uncertain as
to whether they will continue recovering. However, the Organisation for Economic Co-operation and
Development (OECD) composite leading indicator and the New Orders Index within the Manufacturing ISM
Report On Business released by the Institute for Supply Management in the United States, both of which are
regarded as leading indicators of Japan's exports, continue to show improvements. I believe that exports are
likely to continue increasing, at least for the time being.
4
Comparing the recent levels of production, the real GDP growth rate, and exports with those before the
January-March quarter of 2008, they are at the levels reached in the first half of the 2002, 2005, and 2006
calendar years, respectively.
5
Every April and October, the Bank releases its Outlook for Economic Activity and Prices (the Outlook Report),
and in the intervening January and July makes interim assessments of the outlook laid out in the Outlook
Report. In the interim assessment made in January 2010, the Policy Board members took the view that growth
prospects remain broadly unchanged compared with the Bank's projections presented in the October 2009
Outlook Report.
BIS Review 47/2010
B. Risk factors for Japan's economy: downside risks have been moderating
I have explained the baseline scenario of the outlook for Japan's economy. I will now
describe the risk factors or uncertainties involved in the scenario that warrant attention.
Compared with the risk assessment presented in the October 2009 Outlook Report, upside
and downside risks have started to become more balanced as a whole due to the
fasterthan-expected growth in emerging economies.
1. Developments in overseas economies
Exports continue to be the driving force behind Japan's economic recovery, and if the
improvement in overseas economies is hampered, then the baseline scenario that Japan's
economy has picked up and will follow a sustainable recovery path might not be achieved.
This suggests that the largest risk factor for Japan's economy may well be developments in
overseas economies.
Growth in the U.S. and European economies, the main engine of overseas economies, has
been dragged down by the situation in the household and banking sectors: households are
reviewing their balance sheets and enduring firms' severe employment adjustments, which
are fundamental factors working to restrain household spending, while banks are reducing
their lending as they hold impaired assets, which are still expanding, on their balance sheets.
Situations such as these might exert downward pressures on economic activity for an
extended period. In addition, there remains the risk that financial activity once again might be
adversely affected by the sluggish economic activity.
In China and other emerging economies, where infrastructure investment had been
considerable even before the financial crisis, governments' expansionary macroeconomic
policies introduced after the financial crisis have stimulated economic activity further. In
addition, the inflow of capital has become aggressive against the background of global
investors' increased appetite for risk-taking in the expectation that the low interest rate policy
in industrialized countries will continue. The increase in capital inflow has pushed up growth
in emerging economies through, for example, a rise in asset prices. These factors combined
have contributed to a faster-than-expected recovery in emerging economies. This is
reassuring in terms of supporting economic recovery in industrialized countries through
improvement in exports, but there are growing concerns about upside risks such as the rise
in overall prices and asset prices in some emerging economies. Moreover, the uptrend in
commodity prices is continuing, as evidenced by the fact that West Texas Intermediate
(WTI), the benchmark for crude oil prices, rose to a level more than double the recent low of
34 U.S. dollars per barrel, marked at the end of 2008, partly due to the expectation of
increased demand in emerging economies. This suggests that an acceleration of capital
inflow to emerging economies is a warning sign of the upside risk. Also demanding attention
is the possibility that a rapid unwinding of international capital flows might occur in a situation
where global investors' expectations change significantly due to certain shocks, and this in
turn could cause disruptions in financial markets and financial systems. It is therefore
important, in view of the situation in international capital flows, to carefully examine whether
there has been growing pressure in the markets for future adjustments that could potentially
lead to a crisis.
2. Effects of policy measures taken worldwide
The second risk factor for Japan's economy is the uncertainty regarding the effects of various
policy measures taken by countries around the globe. Economic stimulus measures by
governments have been one of the key driving forces behind the global economic recovery
achieved so far, but if such policy effects wane before private demand starts a full-fledged
self-sustaining recovery, it is possible that economic activity will deviate downward from the
projected growth path. Japan and many industrialized countries are facing the difficult issue
of how to strike a balance between improving fiscal discipline and avoiding economic
slowdown, as they suffer from deteriorating fiscal balances and have only limited capacity for
further government spending.6
The market has started to direct its attention to the risk that deterioration in fiscal balances
might push up long-term interest rates and thereby reduce the effects of monetary policy.
The so-called sovereign risk is considered to be an extension of that risk. In fact, Greece,
which is suffering the most serious fiscal deficit problem among the European Union member
states, has experienced a sharp rise in long-term interest rates. This is an illuminating
example of how loss of confidence in fiscal sustainability might trigger a significant negative
market response. Therefore, it is important that governments clearly show the future course
of fiscal consolidation, or improvement of fiscal discipline, and steadily proceed with it at an
appropriate time.
3. Possible changes in firms' medium- to long-term growth expectations
The third risk factor for Japan's economy is the possible changes in firms' medium- to
longterm expectations of future economic growth. In the baseline scenario that Japan's economy
has picked up and will follow a sustainable recovery path, it is projected that firms again will
increase spending on fixed investment and employment. If emerging economies are
expected to maintain sustainable high growth while Japan's economic growth is increasingly
expected to remain slow, there is a risk that investment in and lending to emerging
economies might escalate but domestic spending might continue to be suppressed. It is said
that many firms are considering increasing the share of their overseas production. How such
a shift to overseas production might affect not only domestic fixed investment and
employment, but also the structure of imports and exports, warrants careful monitoring.7
II. The Bank's monetary policy: how is it conducted?
So far, I have talked about the current situation and the outlook for Japan's economy. Next, I
will explain how the Bank has conducted monetary policy.
A. Measures taken by the Bank: treading an unprecedented path
Since September 2008, when the turmoil in global financial markets and the financial
systems in the United States and Europe increased in severity, the Bank has undertaken
various measures. These measures can be broadly divided into the following: (1) reductions
in the policy interest rate; (2) provision of ample funds; and (3) restoring the proper
functioning of financial markets.
1. Reductions in the policy interest rate
Let me begin with interest rate policy. The Bank lowered its target for the uncollateralized
overnight call rate - that is, the policy rate - in October and again in December 2008, to
0.1 percent, or virtually zero percent. The policy interest rate has remained at that level since
then.
2. Provision of ample funds
The second measure involves the provision of ample funds. Financial market stability is a
prerequisite for sustainable economic growth. It is therefore vital that a central bank provide
ample funds to financial markets when they face a situation of extremely tight liquidity.
Based on such thinking, the Bank has provided ample funds while guiding the policy interest
rate in an appropriate manner to achieve the targeted level, through various money market
operations that I will talk about later. Let us look at, for example, the amount outstanding of
funds provided as at the calendar year-ends of 2007, 2008, and 2009. In 2007, during which
we saw no particular market disruptions, the provision of funds as at year-end amounted to
33 trillion yen. In contrast, the amount at the 2008 year-end reached nearly 40 trillion yen,
reflecting the significant instability in financial markets following the failure of Lehman
Brothers, or the "Lehman shock". The Bank has continued to provide ample funds to
maintain the extremely accommodative financial environment, even after financial markets
started to regain stability in the middle of 2009. The amount outstanding of funds provided as
at the 2009 year-end amounted to 42 trillion yen.
3. Restoration of the proper functioning of individual financial markets
The third measure is aimed at restoring the proper functioning of individual financial markets.
To this end, the Bank started outright purchases of CP and corporate bonds, both of which
are unprecedented and exceptional measures for a central bank, from January and March
2009, respectively. These measures were effective in restoring the functioning of the CP and
corporate bond markets while markedly improving their issuing conditions.8 Given that the
purpose to restore market functioning had been achieved, these measures were completed
at the end of 2009. Issuing conditions for CP and corporate bonds have remained favorable.
B. Selection of policy measures: examining the positive and negative effects
So far, I have outlined the measures taken by the Bank. Next, I will try to explain an issue
about which I am often questioned, namely, what are the determinants the Bank deems
important when making monetary policy decisions, or more specifically, when choosing
which measures to take?
The Bank has been aggressive in its decision to take exceptional measures in response to
the sharp economic downturn and malfunctioning of some financial markets after the
Lehman shock. At the same time, however, it has been cautious in deciding on measures
that potentially could hurt Japan's economy. In the deliberation process, I take great care,
just as in corporate management, to carefully examine from a long-term perspective both the
positive and negative effects of various policies, and select the optimum measures for
Japan's economy.
C. Reduction of interest rates on term instruments: the most effective way to
support the economy
The Bank's policy rate is the uncollateralized overnight call rate. Since the Lehman shock,
however, I have attached importance to the reduction of longer-term interest rates - that is,
interest rates on term instruments. This is because corporate and household loans in many
cases are based on these rates and, thus, I believe the most effective way to support the
economy is to lower them. The Bank introduced a new means of providing the money
markets with ample longer-term funds with three-month maturity at a fixed rate of
0.1 percent, which is equivalent to the policy rate - namely, a special funds-supplying
operation to facilitate corporate financing, and a fixed-rate funds-supplying operation against
pooled collateral.9 Interest rates on term instruments by nature are not suitable as target
policy rates with specific figures10; however, stabilizing such rates at low levels has been
effective in pushing down the interest rate burden for the country's economic activity.
D. Outright purchases of Japanese Government Bonds (JGBs): the risk of a rise
in long-term interest rates warrants attention
As an example of the policy measure to which possible negative side effects require careful
attention, I would like to put forward the case of outright purchases of JGBs. The Bank
conducts its monetary policy through market operations - providing funds to, and/or
absorbing them from, financial markets on a daily basis. At the same time, as part of its
objective of supplying ample funds, the Bank purchases 21.6 trillion yen worth of JGBs a
year so as to reduce the burden of day-to-day short-term operations by steadily supplying
long-term funds.
Will the Bank further increase outright purchases of JGBs as a means of monetary easing?
This is another question that I am often asked. It is necessary to consider the risk that
outright purchases might be misinterpreted as a means of facilitating government financing
by monetizing public debt. This could cause adverse side effects, such as a rise in long-term
interest rates that diverge from the outlook for economic activity. The benchmark long-term
rate in Japan has been stable in the range of 1.0-1.5 percent, although the country's ratio of
public debt to GDP is the highest among industrialized countries.11 However, there is no
guarantee that Japan will be able to continue to increase public debt over the long run while
9
The Bank introduced the special funds-supplying operation to facilitate corporate financing and the fixed-rate
funds-supplying operation against pooled collateral in January and December 2009, respectively. Both
operations provide longer-term funds with three-month maturity at a fixed rate of 0.1 percent, which is
equivalent to the policy rate. These operations differ over the range of eligible collateral: that eligible for the
former operation is limited to corporate debt, as it aims to facilitate corporate financing, while in the latter case,
the Bank accepts collateral that includes Japanese government securities. The former operation will be
completed at the end of March 2010, in view of the improvement in firms' funding conditions and of the Bank's
intention to expand operation schemes by accepting a wider range of collateral.
10
LIBOR and TIBOR are reference rates offered by reporting banks and are not the actual rates applied to
transactions; therefore, they sometimes fall short of being adequate market indicators. For details, see
"BOX 4: London Interbank Offered Rate (LIBOR)" in the January 2010 issue of the Financial Markets Report,
which is available on the Bank's web site.
11
According to the OECD Economic Outlook published in November 2009 (No. 86), the ratio of government debt
to GDP projected for 2009 was 189.3 percent in Japan, far exceeding that of the United States (83.9 percent),
the United Kingdom (71.0 percent), and Greece (114.9 percent), with the average of the OECD countries at
90.0 percent. Meanwhile, the rating agency Standard & Poor's downgraded its outlook for Japan's sovereign
AA ratings from "stable" to "negative". The IMF, in its Global Financial Stability Report Market Update released
in January 2010, cited Japan and the United Kingdom as countries under growing market pressure for an
increase in their government debt issuance, as evidenced by the widening of sovereign credit default swap
(CDS) spreads.
BIS Review 47/2010
maintaining long-term rates at the current low levels.12 As I have mentioned when explaining
the second risk factor for Japan's economy, a rise in long-term interest rates is a major risk
faced by many industrialized countries. It is important to bear in mind that, when the Federal
Reserve and the Bank of England started outright purchases of government securities in
2009, long-term interest rates in both economies soared after a temporary initial fall.13 The
Bank will continue purchasing JGBs in order to ensure provision of long-term funds, while
making clear that the purchases are in no way intended for government financing.14
E. The positive and negative effects of providing ample funds: alleviating market
anxiety while maintaining market functioning
Regarding the provision of liquidity to financial markets, it is also necessary to consider both
the positive and negative effects. As I mentioned earlier, the Bank has continued to supply
ample funds. However, even in such a situation, the Bank frequently has been asked
whether it will resume the quantitative easing policy15 it adopted in the past, and whether it
will expand the size of its balance sheet.
I evaluate the positive effects of quantitative easing as follows: it is effective in alleviating
market anxiety and stabilizing financial markets when the financial system is under great
strain, as was the case when the policy was adopted in Japan in 2001. But its effects are
significantly limited in terms of stimulating the spending activities of economic entities and
raising the level of prices. Regarding the size of a central bank's balance sheet, I consider
the expansion of reserves held at the central bank to be the by-product of various
fundssupplying operations, and believe the total amount of reserves does not directly indicate the
degree of monetary easing.16 The more important point is how far the massive amount of
12
Long-term interest rates in Japan are stable at low levels in spite of the extremely large government debt
outstanding compared with other industrialized countries. This has been attributed to factors unique to Japan's
bond market, namely, that there are ample domestic surplus funds backed by high private-sector savings, and
JGBs are mostly purchased and held by residents in Japan. However, in view of the fiscal burden that will be
required to support the aging society, it is uncertain whether domestic sources of funds alone might continue
to assume such a burden. The surplus in household funds is on a downward trend and firms might cease to
hold surplus funds due to the changes in corporate investment behavior.
13
For more information concerning empirical studies on, and overseas examples of, the effects of outright
central bank purchases of government securities on long-term interest rates, see the speech "Recent
Economic and Financial Developments and the Conduct of Monetary Policy" I delivered at a meeting with
business leaders in Nagano in July 2009, a summary of which is available on the Bank's web site. Federal
Reserve Chairman Ben S. Bernanke has repeatedly commented that purchases of Treasury securities were
not conducted with the aim of targeting a particular interest rate, nor monetizing federal debt.
14
The Federal Reserve and the Bank of England completed their purchases of long-term government securities
in October 2009 and January 2010, respectively.
15
From March 2001 to March 2006, the main operating target for the Bank's money market operations was
changed from a specific interest rate - the uncollateralized overnight call rate - to the amount of funds - the
total outstanding balance of current accounts held by financial institutions with the Bank which include reserve
balances. Specifically, the guideline for market operations was set as "The Bank of Japan will conduct money
market operations, aiming at the outstanding balance of current accounts held at the Bank at around XX trillion
yen". This type of money market operations was called a "quantitative easing policy" because it was
conducted by achieving the target aimed at the financial quantitative indicator. At present, the Bank provides
ample funds by conducting various operations, setting the operating target not at a quantitative indicator but at
the policy interest rate.
16
On this point, the research paper from the Federal Reserve Bank of New York, entitled "Why Are Banks
Holding So Many Excess Reserves?", written by Todd Keister and James J. McAndrews, and released in
December 2009, concludes that "the liquidity facilities and other credit programs introduced by the Federal
Reserve in response to the crisis have created, as a by-product, a large quantity of reserves in the banking
system"; and "The total quantity of reserves in the banking system reflects the scale of the Fed's policy
initiatives, but conveys no information of the initiatives' effects on the bank lending or on the economy more
broadly".
funds provided by the Bank to financial institutions is passed on to firms and households - in
other words, to what extent the policy has effects on the increase in bank lending. This
depends on firms' and households' demand for funds and banks' lending attitude. Currently,
the year-on-year rate of change in bank lending is negative as a result of the sluggish
demand for funds. Against this background, the abundant funds supplied by the Bank to
financial institutions have been accumulating as excess reserves at the Bank, underlining a
growing sense of an abundance of liquidity. At present, the Bank does not supply funds by
setting its operating target at the outstanding balance of current accounts, as was the case
with the past "quantitative easing policy". The Bank, however, is providing a sufficient amount
of liquidity to meet market demand, creating a sense of confidence regarding the availability
of liquidity. Considering this, I believe that the current operations have effects similar to those
of the "quantitative easing policy" conducted in the past.
With regard to negative effects, it is important to avoid impairing the proper functioning of
markets. If a central bank's intervention is excessive and the markets become excessively
dependent on funds provided through the Bank's market operations, the intervention itself
may impair the proper functioning of markets, thereby defeating its intended purpose.17 In
this sense, the past "quantitative easing policy" may have had a negative impact on market
functioning, because the amount of funds provided by the Bank was set as the operating
target. In comparison, the Bank provides the sufficient amount of liquidity that markets
require, while maintaining their proper functioning.
III. The issue of deflation: what is the cause and remedy?
Having discussed the Bank's conduct of monetary policy, I now turn to the third topic for
today: the issue of deflation. I will touch upon the current state of prices in Japan, before
moving on to the cause of and remedy for deflation.
A. Price movements in Japan: deterioration in the supply and demand balance
exerts downward pressure
The year-on-year pace of decline in the consumer price index (CPI) excluding fresh food, or
the core CPI, has been moderating due to the prices of petroleum products, which are lower
than their high levels of a year ago. However, the year-on-year rate of decline in the CPI
excluding food and energy - the core-core CPI, which is said to indicate the underlying trend
in prices - continues to accelerate.18 Households are curtailing spending due to the
continued decrease in household income, and firms are responding to this situation by
lowering the retail prices of their goods/services.19 Deterioration in the supply and demand
balance in the economy as a whole, as well as the fundamental weakness in consumption
- except in the case of a small number of certain durable goods - are adding downward
pressure on the price formation process.
As of January 2010, the median outlook for the core CPI by the seven Policy Board members
was minus 1.5 percent in fiscal 2009, minus 0.5 percent in fiscal 2010, and minus 0.2 percent
in fiscal 2011. The members had expected that the downward pressure on prices would
gradually diminish as the supply and demand balance improved with the recovery in the
economy, but prices would continue to decline - deflation would continue - even in fiscal
2011, or the final fiscal year of the projection period.
One of the problems with deflation is that nominal debt, wages, and interest rates do not
change in proportion to the decline in the price level, and therefore remain high in real terms.
As a result, spending comes under pressure from several angles, adversely affecting
economic activity. Given that the pace of improvement in the aggregate supply and demand
balance is expected to be moderate, it is important to pay close attention to future
developments in the economy and prices.
B. The fundamental cause of deflation: lack of demand
I will now talk about the cause of deflation. Since the 1990s, inflation rates have been falling
worldwide, reflecting the substantial decline in costs as planned economies joined the world
of the market economies. During this worldwide trend, Japan's inflation rate has been lower
than that of other industrialized countries since the bubble period in the late 1980s. Until the
mid-1990s, the high prices in Japan were pushed down by rationalization of the distribution
system and deregulation. Since then, prices have continued to decline due to various
additional factors, including: (1) the continuous decline in wages as a result of managers and
workers in Japan placing priority on maintaining employment during the adjustment phase
following the bursting of the economic bubble; and (2) restrained demand reflecting the
decline in expectations for future economic growth resulting from the aging and shrinking of
Japan's population. Ultimately, these factors point to the fundamental cause of deflation -
lack of demand.
C. Remedy for deflation: unlocking and capturing potential demand
It is necessary that we confront and find a way to tackle this fundamental cause of deflation:
the lack of demand.
Deflation cannot be solved just by generating sustainable demand that is large enough to
close the output gap, as the problem does not lie solely on the demand side. What is
important is where to unlock demand and how to capture it on the supply side. Given that the
output gap has been historically large following the bursting of the global bubble, it would be
unrealistic to expect that demand will recover to meet the existing supply capacity for goods
and serv