trend, while the risks of a slowdown are being observed in europe and emerging economies. however, as the interaction among economies worldwide strengthens, there is a high possibility that the currently steady u. s. economy will be affected by the slowdown in the european and emerging economies ( chart 5 ). in some other parts of the world, geopolitical risks have been mounting recently, and a spread of the virus infection in west africa is considered as a new risk factor. b. developments in global financial markets global financial markets had been tied up in a goldilocks situation until summer 2014, in which investors had been searching for yields under low volatility conditions. as the outlook for the world economy became cautious, however, a temporary heightening of investors ’ risk aversion and an overall increase in market volatility were observed in early autumn. international commodity prices declined, as mentioned earlier, and long - term interest rates fell in reflection of flight to quality. such risk aversion has waned recently, and stock prices are firm globally, but international commodity prices remain weak. it is difficult to judge whether these market movements are simply in reaction to the overheating seen until this summer or else imply a spread of the cautious views, such as the recent argument regarding secular stagnation. interaction between markets during such movements is also hard to explain. however, one factor behind them seems to be the temporary unwinding of excessive optimism, in light of monetary tightening scheduled to be conducted by the federal reserve, and the continued effects of the unwinding in the international commodity markets. another factor seems to be that market participants, particularly in the international commodity markets, are aware of the risk that the slowdown in the european and emerging economies could spread to the u. s. economy, which is leading the world economic growth at present. let me add a few more things about the unwinding that i have just mentioned. market volatility is on the rise, and it seems that the progress in international financial regulatory reforms has had an effect on it ( chart 6 ) : with the implementation of the reforms, it is likely that major market makers ’ risk - taking activities have been restricted, leading to a decline in the market ’ s risk - absorbing capacity and the overall liquidity. such issues had been generally kept below the surface, while the central banks of major countries had supplied ample liquidity to support the market. however, market participants have become aware of these

yoshihisa morimoto : economic activity and prices in japan and monetary policy speech by mr yoshihisa morimoto, member of the policy board of the bank of japan, at a meeting with business leaders, nagasaki, 23 june 2011. * i. * * the current situation of and outlook for the world economy the bank of japan released its latest outlook for economic activity and prices ( hereafter the outlook report ) on april 29. the report presents the scenario for japan ’ s economy considered to be the most likely by the bank. the bank projects that the economy will return to a moderate recovery path in the second half of fiscal 2011. although supply - side constraints – due to the damage to production facilities and the disruption of supply chains for parts and components caused by the great east japan earthquake in march – as well as constraints on electric power supply are expected to weigh down the economy for a while, these downward pressures are expected to gradually ease, paving the way for a moderate recovery in production. of course, this recovery in production will not be long - lived unless it is accompanied by a rise in sales. a key element in this scenario of a return to a moderate recovery, therefore, is the expectation that exports will increase based on an improvement in overseas economies. consequently, before talking about the domestic economy, let me take a closer look at the world economy. following the recovery from the lehman shock in the autumn of 2008, growth in the world economy temporarily slowed in the summer of 2010. from the end of autumn, economic growth then regained momentum, driven by strong growth in emerging and commodityexporting economies. at present, the pace has slowed somewhat due partly to the effects of soaring crude oil prices. as for the outlook, a number of issues require careful attention, but basically it is expected that – fueled by rapid growth in emerging and commodity - exporting economies – the pace of global growth will soon pick up again and the global economy will continue to expand. the international monetary fund ( imf ) in its world economic outlook released in april 2011 forecasts that the global economy will grow by around 4. 5 percent in both 2011 and 2012. a. advanced economies looking at developments in the global economy in greater detail, it is useful to focus on advanced economies and on emerging and commodity - exporting economies separately. let me start by considering advanced economies. in the united states, from the autumn of 2010 onward, various stimulus measures, such as monetary easing by the federal