##bable they might be - is that although at present there seem to be no signs of overinvestment, the stimulative effect of monetary policy on economic activity and prices may be amplified with corporate profitability high and prices on a positive trend. for instance, if the expectation takes hold that interest rates will remain low for a long time regardless of economic activity and prices, there is a risk in the medium to long term of larger economic swings, resulting in large fluctuations in the rate of inflation, channeled, for example, via financial behavior and investment activity. meanwhile, depending on future developments, the economic expansion and rising prices may stall. however, japan's economy seems more resilient to such shocks, since the financial system has regained stability and the economy has now cast off excesses in production capacity, employment, and debt. in fact, the economy recovered its momentum shortly after entering a soft patch due to adjustments in it - related industries in the summer of 2004. unlike in the past, the risk of the economy falling into a vicious circle of declining prices and deteriorating economic activity seems small, even if the economic expansion and rising prices stall. with regard to the future course of monetary policy, as a result of the assessment of economic activity and prices from the two perspectives, it seems appropriate to adjust the level of interest rates gradually in the light of developments in economic activity and prices, while maintaining the accommodative financial conditions ensuing from very low interest rates for some time. such an adjustment in the policy interest rate, in our view, will contribute to ensuring price stability and achieving sustainable economic growth in the medium to long term. should a large disturbance in the price and economic situation occur, a drastic policy change may become necessary, which would potentially carry the danger of causing large economic swings. in order to avoid this happening, it is important for the bank to take a forward - looking approach in its conduct of monetary policy. such forward - looking policy is not intended to stifle growth potential, but rather to steer the economy toward a sustained period of expansion. as i have emphasized repeatedly, the bank does not have a predetermined view regarding a future increase in the policy interest rate. the bank will adjust the level of interest rates gradually, carefully assessing economic activity and prices. conclusion under the new framework for the conduct of monetary policy, it is very important for the bank to carefully explain its assessment of the state of the economy and financial developments and its

masaaki shirakawa : demographic changes and macroeconomic performance – japanese experiences opening remarks by mr masaaki shirakawa, governor of the bank of japan, at the 2012 boj - imes conference, hosted by the institute for monetary and economic studies, at the bank of japan, tokyo, 30 may 2012. * i. * * introduction good morning. i am very pleased to have a lot of participants from central banks, international organizations, and academia in this year ’ s annual boj - imes conference. on behalf of my colleagues at the bank of japan, i am privileged to welcome you all here in tokyo. the theme of this year ’ s conference is “ demographic changes and macroeconomic performance. ” on the theme, i am sure that japan is the most notable case that provides a basis for discussion. japan ’ s population and the working - age population – that is, the population aged between 15 and 64 years – came to decline after their peak - years in 2007 and in 1995 respectively. the share of the population aged 65 years or older rose rapidly to 23 % in 2010 from 12 % in 1990 ( chart 1 ). in the meantime, japan ’ s economic growth gradually slowed during the past two decades mainly for two reasons. in the former half of the period, the japanese economy was hobbled by the crippling effect of the burst of the bubble. in the latter half, the rapid population aging hampered the japanese economy through a variety of channels. in an attempt to illustrate that, i frequently rely on the cross - country comparison of growth rates including japan. among g - 7 countries, the japanese gdp growth rate per working - age population – an indicator least affected by demographic changes in the short run – was the highest. by contrast, the japanese per capita gdp growth rate was almost the same as the average, and the japanese gdp growth rate, which is subject to the decreases in the total population, was below average ( chart 2 ). neoclassical growth theories normally do not distinguish the overall population from the working - age population due to analytical simplicity. however, without taking into account the distinction between the two variables explicitly, the very challenges that japan is currently faced with will be outside the scope of analysis. in the macroeconomic policy discussions in other economies, japan ’ s experiences are frequently cited, and a lot of lessons are drawn over the past decade. however, a general conclusion obtained in such policy discussions without considering the differences in the demographic factors between