banks need to understand is that the behavior of market participants will be influenced by human nature and competitive pressures in the markets. without trying to paint a complete picture, let me raise a number of issues with respect to the role of central banks which i believe are important in the new financial environment. role of central banks assessing risks on a system - wide basis first, central banks need to assess risks on a system - wide basis taking into consideration the linkages between the real economy and financial markets as well as among financial institutions. such assessment will be the basis for policy actions regarding financial system stability. of course, this is a typical example of something that is easier said than done. before the current crisis, central banks issued warnings regarding the build - up of risks through financial system reports. however, issuing warnings are not so difficult. senior bank executives and other market participants themselves, to some extent, recognize such risks. if we seriously wish to reduce such risks, remedial action is required. but in order to go beyond analysis and take remedial actions, a proper assessment, a strong will, together with a robust legal framework which enables effective action, are all necessary. in any event, without a system - wide assessment, no actions are possible. i believe central banks are in a natural position to take up such an assessment role. as the entity responsible for monetary policy, central banks focus on macro economic conditions, have close contacts with financial market participants, and our institutional culture emphasizes the importance of research. reconsidering the conduct of monetary policy second, we need to reconsider the conduct of monetary policy. when one looks at market participants and senior bank management collectively, their incentives are also influenced by macro economic and financial conditions. the most typical example would be the search for yield witnessed during the so - called great moderation. this incentive issue evolves into a difficult challenge for monetary policy when asset bubbles emerge. the problem is often debated simply as whether monetary policy should lean against the wind or excessive asset price increases. however, i believe that such a formulation of the issue confuses the discussions on monetary policy. no central banker believes that bubbles can or should be prevented just through monetary policy. a more practical formulation of the issue for central banks would be, " how should monetary policy be conducted in an environment where asset prices are rising, credit and leverage are increasing and the economy is growing, strongly signaling a need for policy tightening, while only general prices remain stable? " in such

been assumed, but i believe that the momentum for price rises remains intact. i believe that there are the following risks to the outlook. risks to japan's economic activity are developments in overseas economies, such as the u. s. economic policies and geopolitical risks, firms'and households'medium - to long - term growth expectations, fiscal sustainability in the medium to long term, as well as the effects of the consumption tax hike scheduled to take place in october 2019. risks to prices, in addition to the risks that i just mentioned, are developments in firms'and households'medium - to long - term inflation expectations, the fact that there are items for which prices are not particularly responsive to the output gap, as well as developments in foreign exchange rates and international commodity prices going forward. in assessing the outlook for developments in economic activity and prices, i am paying particular attention to the effects of the scheduled consumption tax hike. on this point, the bank estimated in the april 2018 outlook report that the net burden on households around the time of the consumption tax hike was expected to be smaller than that of the two previous consumption tax hikes. in fiscal 1997, apart from the hike in the consumption tax rate by 2 percentage points to 5 percent, there were additional increases in the household burden in the form of a termination of income tax reductions and an increase in medical costs resulting from reforms of medical care insurance. together, these were estimated to have resulted in an increase of over 8 trillion yen in the net burden on households. in fiscal 2014, the tax rate was raised by 3 percentage points to 8 percent, and the increase in the net burden on households was estimated to have been about 8 trillion yen. although measures were taken to reduce the burden, such as increases in welfare benefits, the effects of such measures were lessened by an increase in pension - related burdens. on the other hand, in fiscal 2019, even though the consumption tax rate is scheduled to be raised by 2 percentage points to 10 percent, there are plans to implement a number of measures to mitigate the burden - - such as a reduced tax rate and an increase in welfare benefits for pensioners - along with the provision of free education. as a result, the net burden on households is estimated to be about 2 trillion yen. of course, these estimates merely indicate mechanical computations of the net burden on households, and there is inevitably considerable uncertainty as to the impact of the consumption tax hike mainly because the impact on the