exceeding 200 percent. that is extremely high internationally and exceeds that of even greece, which is 130 percent. seizing that point, some people voice concern that, as things stand, japan might tumble into trouble like greece. however, in reality, japanese government bonds ( jgbs ) have been issued smoothly and their yields have been stable at extremely low levels. as a reason for that, it has been frequently said that, in japan, households and firms have ample savings, and thus there is no need to worry, for now, about lack of money to purchase jgbs. to be sure, that is a factor supporting a smooth issuance of jgbs. but if a situation arises in which prices of jgbs decline significantly or people worry about repayment of the principal, nobody will be willing to purchase jgbs even though the japanese public has ample savings at present. to begin with, amid rapid progress in the demographic vortex, there is no guarantee that such ample savings will last, and thus discussions that rely on the continued existence of ample savings might not necessarily be appropriate. then, why have jgbs been issued smoothly? i believe that it is because there is confidence in japan ’ s future policy conduct. namely, despite deterioration in fiscal balance, market participants believe that “ the japanese have the will and ability to eventually address fiscal consolidation. ” in fact, such efforts are steadily underway. that is the critical difference bis central bankers ’ speeches between japan and greece. as efforts to ensure fiscal sustainability have been progressing, in my view the public also believes that monetary policy has been conducted toward fulfilling the intended purpose of achieving sustainable economic growth with price stability. namely, the public believes that the bank ’ s money will not be used for facilitating government financing. worldwide, since the lehman shock, global investors have increasingly become more risk averse than before, and that has also caused japanese government bonds ’ prices to rise and yields to fall. credibility of securitized products in the united states, which used to be considered as safe assets with little risk, and government bonds in peripheral european countries, has declined and the supply of financial assets, internationally, that can meet investors ’ propensity for safety has declined substantially. against such a backdrop, investors worldwide have channeled funds into the japanese government bond market in pursuit of limited safe assets, having led to a recent rise in government bond prices. one major reason for the persistent yen appreciation seen in recent several years has been such flow of

in japan, reconstruction - related demand after the earthquake is expected to gradually materialize. in the bank ’ s current baseline scenario, therefore, japan ’ s economy is expected to return to a moderate recovery path after slowing for the time being. according to the bank ’ s projections released at the end of last month, the real gdp growth rate will remain relatively low in fiscal 2011, at 0. 3 percent, but will continue to register positive growth in fiscal 2012 and fiscal 2013 – of 2. 2 percent and 1. 5 percent, respectively. meanwhile, the year - on - year rate of change in the consumer price index ( cpi ) is currently at around 0 percent following a gradual narrowing of the negative cpi growth rates since the summer of 2009. it is expected to gradually rise to around 0. 5 percent as we approach fiscal 2013, with the improvement in the aggregate supply and demand balance ( chart 1 ). as illustrated, in the bank ’ s baseline scenario, the slightly more long - term perspective is that japan ’ s economy will eventually return to a sustainable growth path with price stability. at the same time, the bank fully recognizes that such an outlook is subject to various uncertainties. bis central bankers ’ speeches the most significant risk factor is the sovereign debt problem in europe, or in the words of european authorities in official documents, “ the sovereign debt crisis ”. how will this problem develop in the coming period and how will it affect global financial markets and the global economy? in europe, interest rates on government bonds issued by countries whose fiscal situations have become subjects of concern have been rising significantly and, more recently, rates have started to rise even in italy, the third - largest economy in the euro area ( chart 2 ). as a result, european financial institutions with large holdings of the government bonds in question have faced difficulties raising funds from the market due to rising concerns about their creditworthiness, thereby making it inevitable that they restrain lending in order to maintain liquidity. as illustrated, in europe, an adverse feedback loop is operating with respect to the fiscal situation, the financial system, and economic activity, under which a decline in confidence in fiscal conditions has increased concerns about the stability of the financial system, which in turn has started to affect economic activity. such economic and financial developments in europe have been affecting economies in other regions around the world. the sovereign debt problem has also been an underlying cause of the yen ’ s appreciation since this summer. global investors have become increasingly risk averse