repeatedly published its forecast in which the decline in the fertility rate was declared to be only temporary and the birth rate expected to rise again soon ( figure 2. ) similarly, life expectancy forecasts have shown that the actual figures consistently exceeded the forecasts ( figure 3 ). these forecast errors show the fundamental uncertainty surrounding the pace of population ageing. and if the actual outcome deviates from the estimated life expectancy and longevity of the entire population in an economy, all service providers will be affected. for example, in the case of longevity risk products, even a slight deviation could significantly increase the exposures of service providers. avoiding patchwork and “ spaghetti code ” problems regulatory and supervisory reform is often called for once such deviation causes an unexpected accumulation of losses. however, this kind of loss - induced regulatory and supervisory reform often leads to patchwork plumbing, which in turn results in a vicious circle of further losses and more patchwork. the repetition of such ad - hoc adjustments to the framework can cause what computer programmers refer to as “ spaghetti code ” problems, in which the framework becomes too complex and entangled, like spaghetti, so that no one knows how to fix the problem. thus, we must be careful not to make over - optimistic forecasts, especially when these forecasts underlie the overall framework and any forecast error might bring about irrevocable losses. it is also important to have in advance a clear strategy on appropriate policy responses when a forecast error is observed, especially in dealing with “ spaghetti code ” risks. the performance of the framework should be subject to continuous review, and necessary measures should be readily available at all times. with these measures in place, it should be possible to prevent a mere forecast error from turning into an “ irreversible ” disorder of the whole system. in this sense, it is better to address the challenges of population ageing by incorporating a second best “ fail - safe ” mechanism into our overall institutional framework, rather than by chasing the first best solution while pretending our forecasts are always rational and unbiased. 2 concluding remarks the recent financial crisis has completely changed the landscape of financial services, both for financial institutions and for supervisors. before the lehman crisis, people tended to see only the “ bright side ” of new financial products, such as securitized products, derivatives, and cross - border transactions, believing them to be backed by advanced and innovative risk - management and investment tools. however, since the crisis revealed the risks and problems

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