amplify their concern and thus lead to uncontrollable turmoil. therefore, governments in the united states, europe, and other countries, in quick succession, announced that they would expand deposit insurance coverage substantially and guarantee financial institutions'debts. the third measure was to put in place a framework that used public funds to purchase impaired assets held by financial institutions and inject capital into financial institutions. given that the financial system problem is essentially a problem of a capital shortage, it is necessary to identify the amount of capital shortage and compensate for it. however, as japan's past experience suggests, it is extremely difficult to accurately gauge, on a real - time basis, the size of impaired assets and a capital shortage when a negative interaction is at work in the financial and economic systems. to ensure financial stability, someone must make a judgment on the capital shortage from a macroeconomic perspective, and that someone can only be the public authorities. the public authorities must decide on a substantial public funds injection if it is judged necessary after thoroughly factoring in future downside risks. while it appears that the condition of global financial markets has somewhat improved as a result of a series of measures being taken by the public authorities, strains in the financial markets are highly likely to continue for the time being. b. developments in overseas economies given the situation in global financial markets, economic activity in the united states has been sluggish with continued adjustments in the housing market. the losses incurred by financial institutions were at first mainly on securitized products related to the subprime mortgage problem, but recently losses on consumer and commercial real estate loans have been on the rise. despite the reduction of the federal reserve's target for the federal funds rate from 5. 25 percent to 1. 0 percent within the short period of a little over a year, the actual interest rates applied to funding by financial institutions, firms, and households are generally rising due to wider credit spreads. the tightening in financial conditions is exerting downward pressures on the economy, and this is leading in turn to deterioration in the asset quality of financial institutions. in other words, a negative interaction is operating between the financial system and economic activity, and the outcome of events is still not clear. in europe, financial institutions'lending attitudes have become tighter as in the united states. demand in the area is slowing due to the deterioration in the terms of trade reflecting the earlier increases in commodity and materials prices, and export conditions are worsening reflecting developments in the

been assumed, but i believe that the momentum for price rises remains intact. i believe that there are the following risks to the outlook. risks to japan's economic activity are developments in overseas economies, such as the u. s. economic policies and geopolitical risks, firms'and households'medium - to long - term growth expectations, fiscal sustainability in the medium to long term, as well as the effects of the consumption tax hike scheduled to take place in october 2019. risks to prices, in addition to the risks that i just mentioned, are developments in firms'and households'medium - to long - term inflation expectations, the fact that there are items for which prices are not particularly responsive to the output gap, as well as developments in foreign exchange rates and international commodity prices going forward. in assessing the outlook for developments in economic activity and prices, i am paying particular attention to the effects of the scheduled consumption tax hike. on this point, the bank estimated in the april 2018 outlook report that the net burden on households around the time of the consumption tax hike was expected to be smaller than that of the two previous consumption tax hikes. in fiscal 1997, apart from the hike in the consumption tax rate by 2 percentage points to 5 percent, there were additional increases in the household burden in the form of a termination of income tax reductions and an increase in medical costs resulting from reforms of medical care insurance. together, these were estimated to have resulted in an increase of over 8 trillion yen in the net burden on households. in fiscal 2014, the tax rate was raised by 3 percentage points to 8 percent, and the increase in the net burden on households was estimated to have been about 8 trillion yen. although measures were taken to reduce the burden, such as increases in welfare benefits, the effects of such measures were lessened by an increase in pension - related burdens. on the other hand, in fiscal 2019, even though the consumption tax rate is scheduled to be raised by 2 percentage points to 10 percent, there are plans to implement a number of measures to mitigate the burden - - such as a reduced tax rate and an increase in welfare benefits for pensioners - along with the provision of free education. as a result, the net burden on households is estimated to be about 2 trillion yen. of course, these estimates merely indicate mechanical computations of the net burden on households, and there is inevitably considerable uncertainty as to the impact of the consumption tax hike mainly because the impact on the