, which japan ’ s economy had faced even before the disaster. i will now describe measures to strengthen japan ’ s growth potential. bis central bankers ’ speeches need to strengthen the growth potential in order to ascertain a specific prescription, we need to make an accurate assessment of the confronting problems. although political and social difficulties are often pointed to as obstacles, i think that implementation of the correct prescription is also hampered by insufficient recognition of the bottom line for japan ’ s economic problems and the causes of declines in the growth rate. in the long run, japan ’ s economic growth rate has been on a declining trend : the average annual growth rate was 5 percent in the 1970s, around 4. 5 percent in the 1980s, around 1. 5 percent in the 1990s, and less than 1 percent in the 2000s. after making a successful take - off to high growth, every economy will sooner or later shift into stable growth. japan was no exception, but abruptly got trapped in the financial bubble that was formed in the process of shifting to stable growth. after declining sharply in the 1990s on the impact of the bursting of the bubble, we have not managed to change the declining trend of japan ’ s growth rate. in the time horizon of two to three years, a growth rate is dominated by changes in demand, except in periods following supply - side shocks such as earthquakes. however, in terms of an average growth rate in the time horizon of 10 to 20 years – namely, the medium - to long - term growth potential – it is natural to consider that key determinants are supply - side factors. real gdp can be expressed as a product of “ the number of workers ” and “ real gdp per worker. ” as a corollary, the real gdp growth rate can be understood as the sum of the rate of increase in the number of workers and the labor productivity growth rate. using these simple figures, i would like to highlight the following facts. the first is that the impact of declines in the number of workers on japan ’ s growth rate has been gradually increasing in the 1990s and the 2000s. after peaking around 1995, the working - age population started to decline and the pace of decline accelerated in the 2000s. the working - age population plays a core role in production activity, and such a decline will constrain economic growth from the supply side through a reduction in the number of workers. the working - age population is also a major driver of private consumption and significantly contributes to tax revenue.

this feedback loop works as follows. if confidence in the government declines due to the expansion of fiscal deficits, the government bond rate increases and the creditworthiness of financial institutions deteriorates. an overall increase in interest rates could cause further fiscal deterioration because an associated economic downturn reduces tax revenue. as a result, interest rates, including those on government bonds, could increase further. such an adverse feedback loop among fiscal conditions, the financial system, and the real economy is the inherent nature of the sovereign debt problem. if the sovereign debt problem in europe triggers instability in global financial markets, it will exert an adverse impact on the global economy as a whole. to address the problem, further efforts in the following two areas are indispensable. one is strenuous efforts by greece and other problem - stricken countries to reduce their fiscal deficits and to advance a structural reform to strengthen competitiveness. the other is to “ buy time. ” the european union ( eu ) and the international monetary fund ( imf ) need to work together to provide financial support to the problem - stricken countries until those countries ’ efforts produce noticeable outcomes. in this regard, greece, the eu, and the imf have been taking necessary steps. the bank has been monitoring the situation carefully. the growth rates in emerging and commodity - exporting economies are still at high levels, but these have recently been slowing somewhat mainly due to the heightened inflationary pressures and associated monetary tightening. in china, the year - on - year rate of increase in the consumer price index ( cpi ) was 6. 4 percent in june 2011, up substantially from the 2. 9 percent exhibited a year ago. in response, the people ’ s bank of china has raised the renminbi benchmark rates five times since october 2010. other emerging economies have also raised interest rates, but in many cases the real short - term interest rate, which subtracts the inflation rate from the nominal interest rate, is significantly below the long - term trend of the economic growth rate. in any case, deceleration in growth is inevitable and necessary for emerging and commodity - exporting economies to achieve sustainable growth. yet, there is a considerable degree of uncertainty as to whether these economies will be able to make a soft landing by achieving price stability and economic growth at the same time. i have explained the current state of the economy, the baseline scenario of the outlook, and associated risks by region – namely, the united states, europe,