activity there are high uncertainties over the baseline scenario of the outlook for economic activity, which i have explained thus far. the biggest risk factors are the consequences of covid - 19 and their impact on domestic and overseas economies. in the bank's outlook, it is assumed that the impact of covid - 19 will almost subside in the middle of the projection period, which is through fiscal 2023, due mainly to progress with vaccinations. however, the pace of vaccine rollout and the effectiveness of the vaccines entail uncertainties, and thus there is a risk that downward pressure on economic activity will increase. it is also uncertain how the varying paces of the rollout across countries and regions will affect global economic activity. in addition, attention should be paid to whether growth expectations will not decline substantially and financial system stability will be maintained until the impact of covid - 19 subsides. on the other hand, with economic measures conducted particularly in advanced economies, such as those in response to the impact of covid - 19, the pace of recovery in domestic and overseas economies could be faster than expected. given these various uncertainties, risks to economic activity are skewed to the downside for the time being, mainly due to the impact of covid - 19. thus, it is necessary to closely monitor future developments. ii. price developments next, i would like to talk about price developments. the year - on - year rate of change in the consumer price index ( cpi ) has been slightly negative, affected by covid - 19 and the past decline in crude oil prices ( chart 6 ). it is likely to remain so for the time being, mainly affected by covid - 19 and a reduction in mobile phone charges. that said, the reduction is a temporary factor that pushes down prices, and when its effects are excluded, the underlying trend in the year - on - year rate of change in the cpi is expected to be steady. although weakness in demand amid the situation of covid - 19 has an impact on prices, anecdotal evidence gained mainly through interviews with firms suggests that firms'price cuts that aim at stimulating demand have not been observed widely, given that one of the reasons for the decrease in demand is vigilance against covid - 19 and that there have been supply - side constraints and cost increases because of taking preventive measures against covid - 19. in addition, it is expected that the year - on - year rate of

##gment about the future direction of policy rates. examining the likely path of growth and inflation for the next one to two years while assessing the changing risk balance from a longer perspective, the bank of japan will make an appropriate judgment in a flexible manner in order to ensure sustainable economic growth with price stability. lastly, let me finish up with a few remarks about japan ’ s financial markets. on the whole, japan ’ s financial markets function well. for example, because of the market turmoil over the past ten months, japan ’ s ted spread, defined as the inter - bank offered rate minus the t - bill rate, has widened by 25 bps, while those spreads in the u. s. and european markets expanded by 100 bps and 70 bps respectively. the prime reason for this relative stability of japan ’ s markets is that japan ’ s financial firms have smaller exposures to structured credit markets than their foreign competitors. in addition, i believe the flexible framework of our money market operations has contributed to preserving the stability of short - term funding market. the bank of japan has acquired this operational flexibility over time, including through its experience of the financial crisis in the last decade. let me discuss this from three angles. first, the bank of japan sets the maturity of market operations quite flexibly, from o / n to one year, depending upon prevailing market conditions. flexibility in liquidity - draining operations such as bill - selling operations also makes it possible to provide large quantities of funds without worrying too much about excess reserves being left in the system. second, the bank of japan executes market operations with a broad range of counterparties, banks, securities houses, and money market broker - dealers. third, our collateral regime is efficient and user - friendly. under the so - called pooled collateral scheme which covers not only regular market operations but also the standing lending facility and day - light overdraft, counterparties are able to pledge a variety of collateral in advance, ranging from government securities to private - label debts including asset - backed securities. when faced with increased stress in the money market over the past ten months, the bank of japan responded by providing ample liquidity or supplying longer - term funds earlier than usual. these operations, conducted within the normal operational modalities, enabled us to control short - term interest rates without serious difficulties. in short, i am reminded that financial market stability is essential for effective monetary policy.