. rebuilding of the disaster areas involves the process of reconfiguring places for industries and employment in accordance with local peoples ’ needs, by making use of the areas ’ advantages and competitiveness. needless to say, the first priority is to return the people in the affected areas to safe and comfortable lives as soon as possible. after completing such rebuilding of lives, even if it takes some time, the disaster areas will definitely move forward into the next phase, in which measures with new innovative ideas for regenerating the regional economy will be implemented. moreover, the earthquake disaster has brought a renewed recognition that the japanese islands always hold the inherent risk of earthquakes and tsunami. not only the disaster areas but also japan as a whole need to make efforts to improve both physical and human infrastructures, in order to make the country more resistant to natural disasters. there are many kinds of potential demand, and in order to meet such demand, innovation again plays an important role. b. efforts toward sustaining fiscal balance i have stressed the importance of addressing the challenge of raising the medium - to longterm growth potential of the economy, which is closely related to another challenge : efforts toward sustaining fiscal balance. as the aging of the population will advance further, pension payments and the costs of health and nursing care are projected to increase substantially. in this situation, allowing the fiscal deficit to perpetuate itself would result in the uncontrollable expansion of government debt outstanding, which is not sustainable. once concern about fiscal sustainability heightens, this could impair the smooth issuance of government bonds. moreover, if more people expect that a greater burden on the working - age population is inevitable, the economy could fall into a vicious circle in which more cautious spending by firms and households leads to a further economic downturn and a deterioration in fiscal conditions. as just described, the two challenges of raising the growth potential and fiscal consolidation are not independent but inextricably linked. one challenge should not be given priority over the other, but rather these must be addressed together. the large fiscal deficit has continued since the 1990s on the back of successive fiscal stimulus measures and the rise in social security costs, and addressing fiscal consolidation was an urgent task even before the earthquake. fiscal measures for the rebuilding and revival of the disaster areas will definitely push up fiscal spending further even though it is still difficult to make an accurate estimate. the expected fiscal deterioration in the short run makes it all the more important for the government to present a

systemic risks are identified, policy actions are taken in a timely and effective way, taking into consideration in particular that risks are evolving over time and across institutions and markets. furthermore, i expect an interesting discussion on the macro - prudential aspects of the new capital and liquidity framework ( basel iii ). this topic is of paramount importance from a policy perspective, given the on - going implementation process of basel iii around the globe. in europe, the capital requirements directive iv and related regulation are expected to substantially reshape the macro - prudential policy framework, and i hope in this regard that our panellists will help us better understand the policy implications of this new framework and to find answers to the question how we can strike the right balance between policy measures taken at the national and at the european level. conclusion with these words, i open this conference on “ financial stability : methodological advances and policy issues ”, and look forward to the keynote addresses, presentations, and the discussions that, i am sure, will help us in carrying out our task of contributing to ensure financial stability. bis central bankers ’ speeches