become more or less unchanged in the july – september quarter. the bank judges that the current state of japan ’ s economy is in the process of a gradual recovery following the rapid pickup since the spring of 2009, but, as i have just explained, the signs of improvement have been weakening due partly to the slowdown in the pace of increase in exports and production. outlook for economic activity and prices, and associating risk factors what is important here is how we can view the future of economic activity that once slowed. the bank released last week the outlook for economic activity and prices, the so - called “ outlook report. ” to put the conclusion of the report first, the bank views that, in the second half of fiscal 2010, the pace of japan ’ s economic recovery is likely to slow temporarily due to the factors such as the slowdown in overseas economies and the ending of the boost from policy measures targeted at durable consumer goods, as well as the recent appreciation of the yen. after entering fiscal 2011, albeit with some lingering effects of the yen ’ s appreciation, the economy is expected to return to the moderate recovery path, given that exports are projected to continue increasing as the growth rate of overseas economies is likely to rise again, and that firms ’ sense of excessive capital stock and labor is likely to be dispelled gradually. thereafter, in fiscal 2012, japan ’ s economy is expected to continue growing at a pace above that in fiscal 2011, as the transmission mechanism by which the strength in exports and production feeds through to income and spending, will likely operate more effectively due to a continued relatively high growth in overseas economies, especially emerging and commodity - exporting economies. showing that in term of the midpoints of policy board members ’ projection, japan ’ s economy is projected to grow annually at 2. 1 percent in fiscal 2010, 1. 8 percent in fiscal 2011, and 2. 1 percent in fiscal 2012. the key to the outlook for prices is not only the outlook for economic activity but also developments in people ’ s inflation expectations in the medium to long term. on this point, judging from various surveys, no significant change has been observed and such inflation expectations seem to have been stable. on that basis, the bank considers that the year - onyear pace of decline in the cpi excluding fresh food is expected to continue slowing as the aggregate supply and demand balance improves gradually. however, given that the drop in demand after the financial crisis was considerable and the pace of economic recovery has

its infancy. the very fact that islamic banking differs from conventional banking in important ways poses regulatory and supervisory problems. the risks taken by islamic financial institutions are not directly comparable to those of conventional financial institutions. in most of the countries where conventional banks operate alongside islamic banks, the same regulatory and supervisory standard is being applied to the extent possible. so far the tendency has been to apply the standard set by the basel committee on banking supervision. it is however recognized that the same standard as is applicable to conventional banking cannot be made rigorously applicable to an islamic banking framework. designing a comprehensive set of standard regulatory prescriptions and supervisory norms for an islamic banking framework that are valid for all countries is a task yet to be accomplished. a prominent obstacle in the accomplishment of this task is the lack of uniformity in specific forms of islamic principles in muslim countries. certain islamic banking procedures and financial instruments that are accepted in one muslim country may be rejected in another 5 muslim country. the variants of islamic banking practices make generalisation difficult as to what constitute standard and universally acceptable islamic banking principles. it is deemed imperative to reach a paradigm version of islamic banking that could be used as a benchmark for the crafting of an effective regulatory system and supervisory norms. in short, the regulatory challenges raised by islamic financial institutions are yet to be resolved in a comprehensive manner. some regulatory authorities have already started looking into the appropriate regulatory framework. however, there is still quite a distance to travel before regulatory authorities could come up with a standard and comprehensive set of regulatory prescriptions and supervisory norms for islamic banking. recognising these facts, the imf supported and facilitated the establishment of the islamic financial services board ( ifsb ) in 2002 with a view to promoting, disseminating and harmonizing best practices in the regulation and supervision of the islamic banking industry. the ifsb also aims at promoting good practices in islamic financial institutions in risk management through research, training and technical assistance. it recently released exposure drafts on risk management standards for islamic financial institutions. the work of the accounting and auditing organisation for islamic financial institutions is also of crucial importance. in the same vein, the work carried out by shariah supervisory boards for islamic financial institutions is of commendable importance for regulatory authorities. in conclusion, let me reiterate that banking is a universal concept that knows no boundaries – be they geographical, ethnic or religious. any form of banking, so long as it is conducted within the parameters of the laws and regulations to provide services