and prices ( outlook report ) through fiscal 2016. looking at the median of the policy board members ’ forecasts, real gdp is projected to grow at 1. 0 percent in fiscal 2014, 1. 5 percent in fiscal 2015, and 1. 3 percent in fiscal 2016 ( chart 5 ). regarding the outlook for economic activity, a potential concern is developments in exports. as i just mentioned, japan ’ s exports have shown some weakness. the recent weakness in exports is essentially due to cyclical factors, mainly the sluggishness in emerging economies. at the same time, the unexpectedly large slowdown of the u. s. economy in the january – march quarter of this year due to the unusually severe winter weather seems to have affected exports with a lag, putting downward pressure on them through early spring. in addition, a possible structural factor why the recovery in japan ’ s exports has lagged behind the recovery in overseas economies that may have played a certain role is the accelerated relocation of production overseas by japanese manufacturing firms. looking ahead, with structural problems such as fiscal and current account deficits persisting in some emerging economies, economic growth in emerging economies, and particularly growth in domestic demand, is expected to remain subdued for the time being. on the other hand, growth in the advanced economies such as the u. s. and european economies is expected to accelerate, while the chinese economy is expected to continue to register stable growth. growth in these economies will likely spread to emerging economies, so that the growth rate of overseas economies overall is expected to accelerate gradually. this is also confirmed by the world economic outlook update published in july by the international monetary fund : global economic growth, which slowed to 3. 2 percent in 2013, is projected to accelerate gradually to 3. 4 percent in 2014 and 4. 0 percent in 2015 ( chart 6 ). therefore, the cyclical factors responsible for the weakness in exports so far are likely to gradually disappear and exports are expected to head for a moderate increase. in addition, from a somewhat longer - term perspective, the correction of the excessive appreciation of the yen in the past will mitigate downward pressure on exports by decelerating the pace of relocation of production overseas. b. price developments let me turn to price developments. the year - on - year rate of increase in the cpi ( excluding fresh food ) excluding the direct effects of the consumption tax hike was plus 1. 3 percent in july. thus, japan ’ s economy is on course to achieving

market liquidity in the future. these projections could draw on information such as other investors ’ asset allocations, market risk, leverage, and ability to manage liquidity risk. in the final analysis, the judgment and experience of traders and risk managers come into play. a third area in which risk - management models currently fall short but improvements are possible is counterparty credit risk. of concern here is that, knowing their ability to measure counterparty credit risk is limited, dealers may cut their business with all counterparties in times of market stress rather than focusing on the counterparties that pose the greatest risk of loss. indeed, this is a major source of “ contagion ” in times of market stress - - the phenomenon that causes even fundamentally healthy enterprises to suffer when the market punishes sick ones. improvements in counterparty credit risk modeling, spurred by the events of autumn 1998, continue. the need for better quantitative and qualitative information about counterparties is essential to any improvement in counterparty credit risk modeling. for example, what asset classes or strategies does the counterparty employ? how much leverage does it tolerate? how liquid or illiquid is its balance sheet? all these questions must be answered for a risk manager to know how a stressful event would affect the counterparty. a key area in counterparty credit risk modeling, as well as in risk modeling more generally, that needs improvement is adequately accounting for the interaction of market, credit, and liquidity risk. these risks are typically measured and managed in isolation from one another, but in reality, they are often linked. an event that drives down the value of a particular asset is likely to reduce the liquidity of that asset as well, at least in the short term. certain types of market and credit risk exposures are closely linked - - for example, derivative contracts on emerging - market exchange rates written with a counterparty from that emerging market. risk managers use qualitative information about the interaction of market, credit, and liquidity risk to control their exposures. one way they do so is by flagging those deals in which such an interaction is likely. another is by quantifying their vulnerability with stress tests. some progress in this area has been made, but more work clearly remains to be done. finally, we are all more aware now of the need to understand operational risk. although operational risk is not easily susceptible to formal modeling, the events of september 11 have highlighted its importance to market participants, to financial