discovered a financial system that had moved away from its traditional role of supporting trade and real investment. he would have found a financial system in which speculation and financial gambling had run rife. he would have encountered a system transformed – a system no longer managing genuine economic risks but one actually creating and assuming financial risks – risks resulting from arbitrage and intentional exposure to asset price changes. that same observer would have realised that financial liberalisation and innovation had made our economies more productive. the securitisation of assets, for example, had great potential to diversify economic risks and to manage them efficiently. but it also meant that financial institutions were able to sell loans or take them off the balance sheet, which weakened lenders ’ incentives to conduct prudent screening and constant monitoring of credit risk. so underwriting standards and lending oversight declined, and contributed to the excessive credit growth in the second half of the 1990s. in sum, the observer would have concluded that the factors that fuelled the credit and asset price boom of the past decade also created the conditions for a bust. in mid - 2007 we started to see the backlash. the start of the financial turmoil was sudden but not unexpected. the financial system as it worked over the past decade – with its flawed incentives and its overly complex products and with global imbalances as its macroeconomic backdrop – was no longer sustainable. the asset cycle turned, the weaknesses were exposed and investors suddenly lost confidence. after years of exceptional risk appetite and high profits, the pendulum swung in the opposite direction, as markets became extremely sensitive to financial risk. in september last year, the crisis escalated sharply. in particular, a major financial player collapsed, which was directly involved in about 30 large payment and settlement systems worldwide and had a balance sheet of usd 600 billion. its failure turned a large - scale crisis of confidence into a global financial panic. financial intermediaries restored liquidity buffers, tried to economise on capital and to scale down their balance sheets. they sold assets and tightened lending conditions. banks and other financial institutions drastically reduced their exposure to the risks that they had imprudently accumulated during the phase of financial euphoria. financial intermediation and loans to companies were curtailed in the wake of a forceful process of “ deleveraging ”. this was the point when important spillovers of the financial crisis set in. we saw the almost immediate spillover from the financial sector to the real economy. the credit squeeze and loss of confidence started

##nings through government spending, despite being affected by such factors as the scheduled consumption tax hike. in terms of specific figures for the economic growth rate, as provided in the april 2019 outlook for economic activity and prices ( outlook report ) released by the bank, the medians of the policy board members ’ forecasts are 0. 8 percent for fiscal 2019, 0. 9 percent for fiscal 2020, and 1. 2 percent for fiscal 2021. 1. under a specific methodology, japan ’ s potential growth rate is estimated to be in the range of 0. 5 - 1. 0 percent recently. however, the estimate of the potential growth rate varies depending on the methodologies employed and could be revised as the sample period becomes longer over time. thus, it should be regarded as being subject to a considerable margin of error. 2. it is assumed that the consumption tax will be raised to 10 percent in october 2019 and that a reduced tax rate will be applied to food and beverages — excluding alcohol and dining out — and newspapers. 2. prices let me now explain price developments. the year - on - year rate of change in the consumer price index ( cpi ) for all items less fresh food is in the range of 0. 5 - 1. 0 percent and at around 0. 5 percent excluding the effects of energy prices, together suggesting that it has continued to show relatively weak developments compared to the economic expansion and labor market tightening. with regard to the outlook, medium - to long - term inflation expectations are projected to rise gradually as firms ’ stance is likely to gradually shift toward further raising wages and prices with the output gap remaining positive. as a result, the year - on - year rate of change in the cpi ( all items less fresh food ) is likely to increase gradually over time. in terms of specific figures, the medians of the policy board members ’ forecasts of the year - on - year rate of change presented in the april 2019 outlook report are 1. 1 percent for fiscal 2019, 1. 4 percent for fiscal 2020, and 1. 6 percent for fiscal 2021. 3 1. 3the forecasts assume the following : ( 1 ) the consumption tax will be raised to 10 percent in october 2019 and a reduced tax rate will be applied to food and beverages — excluding alcohol and dining out — and newspapers, and ( 2 ) with regard to policies concerning the provision of free education, measures for free early childhood education as well as other measures including free higher education will be introduced in