and corporate sectors within the country. however, it is not quite appropriate to discuss this issue only in terms of the supply and demand balance. needless to say, there is no problem if market participants are convinced by evidence that the government will work toward fiscal consolidation in the medium term. if not, however, the possibility cannot be ruled out that, as in europe, some events could cause market participants to become aware of risks to government bond holdings, which could in turn lead to a discontinuous rise in interest rates. confidence in government bonds is also a significant issue in japan given the large share on an international comparison of government bond holdings in the assets of financial institutions, which are the main suppliers of funds to firms. it is important to clearly present the medium - term roadmap for fiscal consolidation and implement specific measures to bring it to realization. iii. medium - to long - term growth potential of japan ’ s economy so far, i have talked about the sovereign debt problem in europe and related matters, which constitute one of the two main points concerning the outlook for japan ’ s economy. i will now turn to the other point – namely, the medium - to long - term growth potential of japan ’ s economy. increasing importance of strengthening the growth potential looking at the long - term developments of japan ’ s real gdp growth rates, the average growth rate was 5 percent in the 1970s and maintained relatively high growth of around 4. 5 percent in the 1980s ( charts 6 and 7 ). it dropped substantially to around 1. 5 percent in the 1990s and further to less than 1 percent in the 2000s. as illustrated, since before the earthquake, japan ’ s economy has faced a long - term downtrend in growth rates on the back of the rapid aging of the population and sluggishness of labor productivity growth. postearthquake, japan ’ s economy faces the new challenges of steadily promoting reconstruction from the disaster, securing a stable electricity supply, and recovering the reputation abroad for japanese products. i have recently heard concern over whether the expansion of overseas production by japanese firms could lead to a hollowing - out of domestic industries. these are all serious challenges, but in what follows i would like to discuss my observations about concern over the hollowing - out of domestic industries and thereby highlight the importance of strengthening the growth potential of japan ’ s economy. bis central bankers ’ speeches meeting expanding overseas demand among many reasons behind japanese firms ’ recent expansion of their overseas production, surveys

##veness of his or her theories. and on occasion, it may be necessary to propose bold hypotheses or interpretations. good theories are likely to be those that, as the result of such efforts, have stood the test of time. in contrast, a policymaker cannot wait until a theory regarding a particular issue has been confirmed, nor can he or she put all eggs in one basket and embark on an untested policy course. a policymaker must make use of the various theories available at the time in making judgments and must sometimes deal with situations where conventional theories do not apply. for this reason, a policymaker must be willing to continue to learn and take every opportunity to exchange views and opinions with academics. at the same time, there may be cases where issues faced by central banks and their experiences may offer new perspectives for academic research. therefore, it is important that academics and policymakers recognize the differences of their roles and respect each other's work. i think it is this interaction between theory and practice that will stimulate further evolution in central banking operations. i hope my speech today will serve to facilitate this interaction. thank you very much for your attention. references [ 1 ] mari ohnuki, " yamada hagaki, japan's first paper money, " monetary and economic studies, 17 ( 1 ), institute for monetary and economic studies, bank of japan, 1999 ( available at http : / / www. imes. boj. or. jp / cm / hmls / feature _ gra2 - 1. htm ). [ 2 ] morio seno'o, " yamada hagaki and the history of paper currency in japan, " imes discussion paper no. 96 - e - 25, institute for monetary and economic studies, bank of japan, 1996 ( the japanese version is available at http : / / www. imes. boj. or. jp / cm / pdffiles / chosa552. pdf ). [ 3 ] bank of japan, " security features of the new bank of japan notes, " 2004 ( available at http : / / www. boj. or. jp / en / type / release / zuiji / kako03 / bnnew3. htm ). [ 4 ] bank of japan, nagoya branch, " morizo kiccoro no osatsu world – atarashii osatsu no hanashi dagane ( a