haruhiko kuroda : asia ’ s contribution to the global economy – prospects and challenges for the transition to domestic demand - led growth speech by mr haruhiko kuroda, governor of the bank of japan, at the 4th bank of thailand policy forum, bangkok, 24 july 2014. * 1. * * introduction governor, distinguished guests, ladies and gentlemen, thank you for inviting me to the 4th bank of thailand policy forum. it is a great honor to address such distinguished guests who are leading the thai economy. i would like to extend my heartfelt gratitude to governor prasarn trairatvorakul for giving me this valuable opportunity. thailand was the first southeast asian nation to establish diplomatic relations with japan, and the year 2017 will mark the 130th anniversary of this significant event. the two countries have been engaged in active cultural exchange at least since the ayutthaya dynasty. in more recent years, our two nations have established close ties as important economic partners, providing support to each other in times of difficulty. the bank of japan received generous donations from the bank of thailand and the bank ’ s staff to help the victims of the great east japan earthquake in 2011. all of us at the bank of japan remain deeply grateful for this kindness. i learned about these donations immediately after i became governor of the bank and felt deep reverence for and strong gratitude to our friends in thailand. i would like to take this opportunity to renew our thanks. thailand is a key base in southeast asia for the economic activities of japanese firms, of which more than 1, 500 are members of the japanese chamber of commerce in bangkok. last year, japan was thailand ’ s largest importing trade partner, and its third largest export destination. the very close ties between the two countries are shown in the results of a survey conducted by the ministry of foreign affairs of japan, where 97 percent of the people in thailand regarded japan as a friendly nation. today, i would like to share with you my views on asia ’ s contribution to global economy. these views are based on my 16 months ’ experience as governor of the bank of japan, and my 8 years as president of the asian development bank before that. i. a change in growth model for the asian economies even when growth in the major advanced economies slowed considerably following the global financial crisis, the asian economies continued to register solid growth. moreover, the region ’ s economies have contributed significantly to the recovery and subsequent growth of the global economy.

2010 ( chart 2 ). rapid population aging second, japan ’ s population has continued to age rapidly ( chart 4 ). the working - age population, or in other words the population aged from 15 to 64, has been declining after peaking in 1995. the working - age population in 2010 declined by 7 percent compared to 15 years previously in 1995, or by 0. 5 percent on a yearly basis. meanwhile, the percentage of people 65 or older accounted for about 15 percent of the total population in 1995, but rose to about 25 percent in 2010. this globally unprecedented rapid population aging has had far - reaching and various effects on japan ’ s economy. the first of these effects is on the economy ’ s potential growth rate. the working - age population plays a central role in economic activity. its decline has reduced labor supply and thus has pushed down economic growth. the second effect is on the fiscal balance. at a time when it has become difficult to increase tax revenues through labor income, pressure has been increasing to expand the fiscal deficit, given that social security expenses – including pension costs and medical and nursing care expenses – increase as the population ages as long as the current level of benefits are maintained. the third effect is the diversification of consumer needs and services. given the diverse lives and lifestyles of the elderly population, individuals have a wide range of unique needs, not only in terms of medical and nursing care but also in wider contexts such as living fulfilling lives after retirement, which encompasses hobbies and continued learning. to put it another way, the continued population aging is, in a sense, a market expansion that cannot be considered in mass terms. japan ’ s delayed response to change we can see that the environment has changed significantly over the past 15 years, with globalization and rapid population aging. change at any point in time always provides a country with both difficulties and opportunities, and the capability of a society as a whole to adapt to this change largely affects its economic performance. on this point, both japan ’ s government and its firms have responded in various ways. unfortunately, however, the economic growth rate has continued to decline and prices have continued to fall moderately bis central bankers ’ speeches as a result. furthermore, government debt has increased substantially during this period. faced with these facts, we cannot deny that japan ’ s economic system has not managed to respond swiftly and sufficiently to the big changes in the environment. one reason for the decline in the growth rate is the aftereffects of the