that the fluctuations in economic activity would vary the size of an output gap, creating pressure up or down on inflation while see fujiki, hirakata and shioji [ 2012 ]. another cross - country inspection based on a broader sample, including developing countries, does not detect positive correlation between inflation and population growth in the 2000s and in earlier periods likewise. see kimura, shimatani, sakura, and nishida [ 2010 ]. bis central bankers ’ speeches attracting or discouraging immigration that amplifies variations in population. that hypothesis, however, appears to be impertinent in some countries including japan where the impact of immigration on the total population is extremely small and thus can be disregarded. on that ground, business cycle fluctuations have had a minimal impact on demographic changes. a closer look at the case of japan confirms the increasingly positive correlation between inflation and population growth since the 1990s ( chart 16 ). that would reflect the momentum towards real income creation being undermined by population aging. as i have discussed, repercussions of the bubble - burst, the rapid aging and stagnation of productivity have been underway in japan. against the backdrop, the real per capita gdp growth rate has remarkably declined from somewhere around four percent back in the 1980s to almost one percent these days ( chart 17 ). with the yet - to - accelerate population aging well envisaged for the foreseeable future, the decline in the real gdp growth rate could undermine the medium - to long - term expectations for potential growth, giving rise to a lower permanent income of households. the decrease in potential growth, which effectively means a stagnant supply capacity, gives rise to a lower permanent income. on the flip side, the corresponding contraction in aggregate supply would offset such decline in aggregate demand. simultaneous changes in aggregate demand and aggregate supply keep the price level unchanged. i reemphasize the fact, however, that the public had long remained by and large unaware of the dangers created by demographic changes but, over time, the awareness has slowly been phased in. along with such gradually phased - in public awareness, yet - to - materialize declines in gdp growth have also been factored in, precipitating today ’ s decrease in aggregate demand and all the forward - looking responses have come into play behind japan ’ s deflation. 5 in the meantime, the real per capita gdp growth rate in most of american and european advanced economies has declined to japan ’ s neighborhood range

the hong kong monetary authority, of the apec compendium of sound practices to facilitate the development of domestic bond markets. this comprised a comprehensive list of recommendations covering topics such as government involvement in the market, level playing fields, consistent tax policies, sound regulation, clarity of responsibilities, transparency, robustness and efficiency of market systems, and so on. crucial though these considerations may be for the foundation of sound markets, they are, by and large, just the basic tenets. even when they have all been observed or put into practice, there is no certainty that active debt markets will emerge. in other words, whilst these may be a set of more or less necessary conditions for market development, they are unlikely to prove sufficient. however good the infrastructure may be, it is the issuers, investors and financial intermediaries which eventually determine whether there is a active market or not. here in hong kong the debt market has grown significantly in the recent past, and the increase in issues by non - financial corporates has been encouraging. but we cannot escape the fact that we are still a relatively small market and that, despite the increases in primary issuance, secondary activity remains subdued. “ so ”, people ask me, “ what is the hong kong monetary authority going to do about it? ” in fact i am not particularly comfortable with the implied presumption that we should be the first port of call when any problems or deficiencies are identified. thus, while i should like to take this opportunity to explain what we are in fact doing or intending to do, i want also to indicate what, in my view, we cannot or should not do. we are involved in the working group established by the securities and futures commission to review hong kong ’ s laws and regulations relating to offers of securities. over the years, several of the procedures have become outdated or have failed adequately to accommodate market innovations. in some instances they are an obstacle to bond market development. there are some complex legal and administrative issues here, which will take time to address. the next step in the process is likely to be the issuance by the sfc of a consultative paper. another area which we are looking at is taxation. we acknowledge that there are serious anomalies in the current arrangements for taxing interest income in hong kong but, given the uniqueness of hong kong ’ s overall tax structure, and the conflicting aims of retaining international competitiveness on the one hand and preserving fiscal revenue on the other,