while the economic outlook is to be examined in the outlook for economic activity and prices that will be published after the next monetary policy meeting on october 28, compared with the outlook presented in the bank ’ s july interim assessment, the economic growth rate is likely to be somewhat lower than expected. during this fiscal year, the slow recovery pace is likely to continue mainly due to the slowdown in overseas economies and the expected decline following the last - minute increase in demand ahead of the expiration of subsidies for energy efficient cars. the fact that the recent appreciation of the yen is deteriorating business sentiment is also a big factor in putting downward pressure on economic activity. in the recently - released september tankan ( short - term economic survey of enterprises in japan ), business conditions d. i. has substantially improved, compared with three months ago, but the d. i. is forecasted to deteriorate considerably in three months ahead, suggesting that firms have come to be cautious due partly to the appreciation of the yen. however, when looking from a somewhat longer perspective, japan ’ s economy is expected to return to the moderate recovery path as emerging economies with high growth potential will complete the current mild adjustment phase. while there are various risks associated with such outlook, we need to keep an eye on developments in overseas economies, mainly the u. s. economy. an important risk factor unique to japan would be developments in car sales in the future, and i think that there is considerable uncertainty associated with the sales. from august through early september, the last - minute increase in demand ahead of the expiration of the subsidies for purchases of energy efficient cars was extremely large, which might suggest that consumers have become sensitive to prices. while it is expected that car sales will plunge for some time following the expiration of the subsidies, what pace the sales will subsequently recover will be critical since that would gauge the strength of japan ’ s potential demand. moreover, the automobile industry has a wide range of supporting industries and its developments affect business conditions of many small - and medium - firms, and thus, from such a viewpoint, the developments warrant close attention. as for prices, the year - on - year decline in the cpi ( excluding fresh food ) has been slowing. however, the possibility that weaker - than - expected economic activity will affect price developments requires vigilance. moreover, there is a risk that the yen ’ s appreciation will lower consumer prices not only through worsening economic activity but also through changes in import prices.

prices ; hence, restructuring measures were necessary to address inherent risks in the financial institutions, which were coming from : bis central bankers ’ speeches • high leverage ; • falling asset quality ; • funding constraints ; • insufficient capitalization ; • fragmentation and conflicts of interest in supervision ; such measures were associated with public intervention in the financial system ( mostly banks ), increasing further the linkage between “ banks and sovereigns ” and creating more “ moral hazard ”. at this point, a financial regulatory reform was necessary at international level, to address such risks. under the guidance of the g20, broader and more comprehensive regulatory reforms were designed, with a special contribution by basel committee, the financial stability board, imf / wb group and many other. such reforms were aiming to : • strengthen the resilience of the financial system ; • avoid future similar crisis ; in more details, such reforms included : • improving the surveillance superstructure of the financial system, through : – establishing institutions with macro - prudential powers to monitor, assess and address systemic risk ( in eu – esrb, ecb ; in us – fsoc ; in uk – fpc ; etc. ) ; – reducing fragmentation and possible conflicts of interest in supervision, and achieve supervision consistency : notably in eu through the “ banking union / single supervisory mechanism ” : ecb – eba – esrb ; in uk – boe – pra – fpc ; – new directives to ensure timing and effective restructuring of banking business ( brrd ) ; – better design and use of tools to assess resilience of financial institutions to risks, like stress - testing ( in eu – eba / ecb ) ; • improving the financial system infrastructure, through : – better protecting the “ core ” banking activity from other activities like “ proprietary investment ” through new rules and proposals ( in us – the “ volcker ” rule ; in uk – proposals of the “ vickers ” commission ; in eu – proposals in “ liikanen ” report ) ; – improving clearing and settlement of securities transactions and streamlining financial reporting ; – improving deposit guarantee schemes • improving in banks under “ basel iii ” : – the quantity and quality of the capital ; – the funding structure – their risk management requirements and capabilities ; to summarize, the legacy of previous financial excesses and the following crisis, is a changing financial landscape ultimately determined by international financial regulatory reform, local financial market characteristics and the crisis impact itself. bis central bankers ’ speeches following