ii. outlook for and risks to economic activity and prices a. outlook next, i would like to turn to the outlook for japan's economic activity and prices. the economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent - up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies. thereafter, the economy is projected to continue growing at a pace above its potential growth rate as a virtuous cycle from income to spending gradually intensifies in the overall economy. as presented in the outlook for economic activity and prices ( outlook report ) decided by the bank at the july 2023 monetary policy meeting ( mpm ), the medians of the policy board members'forecasts for the real gdp growth rate are 1. 3 percent for fiscal 2023, 1. 2 percent for fiscal 2024, and 1. 0 percent for fiscal 2025 ( chart 10 ). the year - on - year rate of increase in the cpi is likely to decelerate, with a waning of the effects of a pass - through to consumer prices of cost increases led by the past rise in import prices. thereafter, the bank's baseline scenario is that the cpi will rise moderately as the output gap improves along with economic recovery and the rates of increase in inflation expectations and wages become higher. given this context, the medians of the policy board members'forecasts for the year - on - year rate of change in the cpi ( all items excluding fresh food ) are 2. 5 percent for fiscal 2023, 1. 9 percent for fiscal 2024, and 1. 6 percent for fiscal 2025 ( chart 10 ). b. risks the outlook for economic activity and prices that i mentioned entails a range of uncertainties. in what follows, i describe three risk factors for economic activity and one for prices. 1. risks to economic activity the first risk factor for economic activity is developments in overseas economic activity and prices, and in global financial and capital markets. although inflation rates abroad have become lower, inflationary pressure has remained on a global basis. central banks have made rapid policy interest rate hikes since 2022 in order to combat strong inflationary pressure. owing to the effects of these rate hikes, global inflationary pressure has been on an easing trend. the bank's baseline scenario is that overseas economies will gradually shift to stable growth as policy rate

fig. 1. 1 ). the economically troubled countries of the eurozone have a similar pattern to japan and the united states. the ratios for greece, portugal and spain have almost the same time profile, and all of them peaked around 2000 – 2005. the peak of the spanish property boom was just after the ratio ’ s peak, and the financial problems of greece also started at the same time. a particularly interesting case is ireland, which showed a sharp rise in the ratio until around 2005. the bust of the country ’ s property market bubble was just a few years around the corner ( fig. 1. 2 ). incidentally, for the sake of completeness, i have included the figures for china ( fig. 1. 3 ), whose ratio seems still to be rising rapidly, but will peak a bit later than in euro - american countries. the peak will be around 2010 – 15, after which it will go down as rapidly as it is now going up. the inverse dependency ratios of many other asian countries have a quite similar time profile to that of china. i am not suggesting any causality here, but simply pointing out the balance sheet adjustments after the bubble burst in japan, united states and the eurozone, whether private bis central bankers ’ speeches or public, must be carried out as the population is ageing. i believe this fact has an important bearing on the future of monetary policy, especially unconventional monetary policy. in section 2, i first examine the process of balance sheet adjustment after the bursting of a bubble and when the population is ageing, juxtaposing japan in the 1990s and the united states in the 2000s. then, in section 3, i summarize the consequences of severe, prolonged balance sheet adjustment, as seen in japan in the 2000s. finally in section 4, i identify the multi - faceted challenges central banks may face as a consequence of carrying out balance sheet adjustments under population ageing, and i explain the bank of japan ’ s policies to tackle these problems. 2. balance sheet adjustment and the breakdown of the transmission mechanism who leveraged during the bubble period? japan and the united sates in order to find out the effect of balance sheet adjustments after the bursting of a bubble, let me first clarify who leveraged during the bubble periods. in japan, it was the corporate sector, especially small to medium - sized firms, which for the first time gained access to large banks after the so - called financial liberalization ( fig. 2