issue facing japan is one of declining growth expectations, which in turn considerably contributes to the current fall in prices, the bank concluded that it should use the central banking functions it is endowed with to help strengthening the growth foundations of japan ’ s economy from the financial side. this is consistent with the mission of monetary policy in the bank of japan act, which stipulates that “ currency and monetary control by the bank of japan shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy. ” in this regard, we at the bank are paying attention to the following two points. first, the aim of this measure is to provide temporary support from the funding side for initiatives taken by financial institutions at their own accord and does not imply that the bank will be involved in the allocation of funds to individual industries or firms. and second, the measure should not inhibit the future conduct of monetary policy. the measure will be conducted while maintaining the soundness of the bank of japan ’ s balance sheet and without constraining interest rate policy by, for example, setting a limit on the total loan amount. concluding remarks time is running out, so i will try to wrap up my speech. the following three conclusions can be drawn. first, at present, japan ’ s economy is making steady progress toward returning to a sustainable growth path with price stability. however, we need to continue to be vigilant for both upside and downside risks such as higher growth in emerging and commodity - exporting countries and international financial developments. second, the most important challenge for japan ’ s economy is the downward trend in the potential growth rate, and we need to squarely address this problem. the so - called deflation problem is, in my view, also a manifestation of the fundamental problem japan is facing, namely, the decline in growth expectations. and third, in order to put the brakes on the decline in the potential growth rate and productivity growth, efforts at innovation are more important than ever. to this end, in addition to the efforts by individual firms, it is important to achieve an optimal allocation of resources and raise the metabolism of the economy. the decline in the growth rate is a phenomenon that has gradually progressed over a long period of time. therefore, raising the potential growth rate will also be a long - drawn - out process. if there was a magic wand that could resolve the problem immediately, somebody would already have used it. the economy is a complex network. for that reason

yukitoshi funo : economic activity and prices in japan, and monetary policy speech by mr yukitoshi funo, member of the policy board of the bank of japan, at a meeting with business leaders, niigata, 31 august 2016. * * * i. recent economic and price developments a. overseas developments i would like to begin my speech by talking about developments in overseas economies. in global financial markets, uncertainty over the global economy going forward heightened and investors ’ risk aversion rapidly strengthened in response to the result of the united kingdom ’ s referendum in late june, in which the majority voted to leave the european union ( eu ). however, global financial markets have been regaining calmness. in this situation, overseas economies have continued to grow at a moderate pace as a whole, although the pace of growth has somewhat decelerated, mainly in emerging and commodity - exporting economies. as for the outlook, overseas economies are expected to moderately increase their growth rates, as it is likely that advanced economies will see steady growth, and emerging economies in particular will gradually move out of their deceleration phase, mainly through their policy measures. according to the world economic outlook ( weo ) update released in july 2016 by the international monetary fund ( imf ), global growth projections have been revised slightly downward from the april 2016 weo, particularly for europe, but the longerterm projection that the global growth rate will moderately increase from 2015 through 2017, from 3. 1 percent in 2015 and 2016 to 3. 4 percent in 2017, is unchanged. looking at developments by major region, the u. s. economy has been on a recovery trend on the back of firmness in household spending. as for the outlook, the industrial sector and overseas demand will likely continue to show mixed developments for the time being, but the economy is expected to continue to see firm growth driven by private demand under accommodative financial conditions. the european economy has continued to recover moderately as private consumption continues to increase. as for the outlook, the economy is projected to see a temporary slowdown in its pace of recovery as firms ’ and households ’ sentiment is becoming cautious due to uncertainty, mainly associated with the united kingdom ’ s vote to leave the eu, but is likely to return to a moderate growth path. the chinese economy has been slightly subdued, particularly in the manufacturing sector, which faces an overhang of production capacities. as for the outlook, the economy is likely to broadly follow