financial regulation and supervision, i would like to emphasize the importance of finding the right balance in various respects without relying too much on any specific methodology. this is based on the recognition that our knowledge is still quite limited with respect to the intrinsically complex mechanisms of the financial system, which continue to evolve in a dynamic manner. the need for humility is obvious when we look back on how bubbles have developed and burst in the past and how financial crises have followed thereafter. in terms of finding the right balance, it is first of all important to strike a balance between regulation and supervision on the one hand and the macroeconomy on the other. while regulation and supervision is, of course, important, the macroeconomic environment is also critical. our experience of financial crises clearly shows that various risks can accumulate in a seemingly benign macroeconomic environment and the materialization of those risks in the form of a financial crisis could end up causing significant economic damage. this is the sort of moral hazard that i spoke of earlier in which perceptions that risks have declined invite excessive risk - taking. in this sense, when conducting monetary policy we need to pay due attention not only to price developments but also to the accumulation of financial imbalances such as asset price inflation, leveraging and increasing maturity mismatch. second, the balance between regulation and supervision is important. business models of financial institutions differ by country and institution. against the backdrop of financial globalization and advances in information and communication technology, individual financial institutions need to flexibly adjust to changing business environments. given this, enforcing “ one - size - fits - all ” regulations for various types of financial institutions could increase the likelihood of adverse side - effects. in order to avoid this, we should rely more on supervision than we do today. we must design a comprehensive framework that better combines regulation and supervision. third, it is crucial to find the right balance by paying due attention to similarities and differences in the functions of various financial institutions. insurance companies are important providers of long - term funds to banks and other sectors. they can play this role because their liabilities are mainly long - term. this makes them less vulnerable to interest risk arising from maturity transformation and liquidity risk in comparison to banks. on the other hand, insurance companies have inherent insurance risk on their liabilities. as such, insurance companies and other financial institutions including banks have different functions and risk profiles. collectively and in complement to one another, these various types of financial institutions perform important financial intermediation functions

that the income situation cannot necessarily be regarded as firm, given that summer and winter bonus payments in 2012 were below the previous year ’ s levels and non - scheduled cash earnings have also declined. meanwhile, housing investment has generally been picking up, supported in part by reconstruction of disaster - stricken homes. it is expected to continue to do so, as a front - loaded increase in demand prior to the consumption tax hike is likely to occur. recently, stock prices have been rising and the yen has been depreciating. a number of factors have been pointed out as the background to these developments, including ( 1 ) abating tensions in the global financial markets due to a settling down of the european sovereign debt crisis for the time being and the reduced threat of the fiscal cliff ; ( 2 ) expectations for the outlook for the u. s. and chinese economies ; and ( 3 ) the widening of japan ’ s trade balance deficit and a sharp fall in the current account surplus. rising bis central bankers ’ speeches expectations in regard to the policy conduct of the government and the bank of japan are also a large factor. in these circumstances, business and household sentiment has improved significantly. as overseas economies recover, japan ’ s economy is expected to return to a solid recovery path as well. in this situation, it is particularly important that the improved business and household sentiment be maintained to ensure strong momentum for recovery. b. outlook for japan ’ s economic activity and prices next, i will talk about the outlook for japan ’ s economic activity and prices. semiannually, in april and october, the bank releases the outlook for economic activity and prices, known as the outlook report, in which it presents its outlook for economic activity and prices for the next two years, carefully assesses upside and downside risks, and summarizes its thinking on the conduct of monetary policy. then, in january and july, the bank makes interim assessments of the outlook laid out in the outlook report. according to the interim assessment made in january 2013, the policy board members ’ baseline scenario for japan ’ s economy is that it is expected to level off more or less for the time being, and thereafter it will return to a moderate recovery path as domestic demand remains resilient, partly due to the effects of various economic measures, and as overseas economies gradually emerge from the deceleration phase. as for prices, the year - on - year rate of change in the consumer price index ( cpi ) is expected to turn negative for