prices, a delay in the narrowing of the negative output gap due to slower - than - expected growth of the japanese economy, and a decline in the public ’ s medium - to long - term inflation expectations reflecting their pessimistic outlook for the economy. as you may know, the base year for the cpi will be revised in august 2011, and it is highly likely that the year - on - year rate of change in the cpi on the basis of the new base year will be lower than that on the basis of the current base year. of course, such statistical revisions leave economic activity unaffected, and it seems certain that the japanese economy is headed in the direction of overcoming deflation. d. outlook for economic activity and prices the outlook i just presented is my own personal assessment. let me now turn to the outlook for economic activity and prices, known as the outlook report, which the bank releases semiannually in april and october. the outlook report presents the policy board members ’ assessments of economic activity and prices based on the forecasts. in addition to the semiannual outlook report, the bank releases interim assessments in july and january that present the bank ’ s revised forecasts. in the most recent forecasts, released on july 12, 2011, policy board members considered it most likely that real gdp in fiscal 2011 would grow by only 0. 4 percent on a year - on - year basis, reflecting the effects of the disaster, but by 2. 9 percent in fiscal 2012 due to an expected increase in demand for rebuilding. the year - on - year change in the core cpi is projected to be 0. 7 percent in both fiscal 2011 and fiscal 2012, reflecting an increase in materials prices and the narrowing of the negative output gap. it should be noted, however, that these figures do not incorporate possible effects of the base year revision for the cpi in august 2011. 1 policy board members make their forecasts in terms of a range of values rather than a point estimate, and they then attach a probability of realization to each of the values. the collective view of the policy board has been that risks are tilted to the downside for real gdp on a year - on - year basis, whereas those for the year - on - year rate of change in the cpi are balanced on the whole. iii. measures taken by the bank next, i will outline the policy measures taken by the bank. the figures referred to in this paragraph are the median of the policy board members ’ forecast

and the ability of financial institutions to find and support promising firms will be improved. bis central bankers ’ speeches iv. revitalizing the japanese economy i will now take a look at the japanese economy from a longer - term perspective. although japan has undergone various phases of economic cycles since the bursting of the economic bubble in the early 1990s, growth on average has been poor. the past 20 years or so of weak growth and deflation have been dubbed the “ two lost decades. ” the devastating earthquake that hit japan on march 11 this year has further aggravated the situation. in order for the economy to emerge from the current slow growth and regain its strength, it is necessary to introduce drastic measures designed not only for the reconstruction of disasterstricken northeastern regions but also for revitalization of the japanese economy as a whole. a. causes of the low growth in the japanese economy before moving on to the topic of revitalizing the japanese economy, i will first touch upon the causes of the high growth experienced after world war ii and ensuing period of low growth. three factors combined to create a favorable environment for the postwar rapid growth. first, japan was in a position to take advantage of being a latecomer, learning from the growth process of advanced economies such as the united states and europe. second, the rise in the working - age population meant an increase in the population bonus, that is, the high share of the working - age population in the total population. and third, japanese manufactured goods enjoyed a superior competitive edge in the absence of rivals outside the united states and europe. during this period of soaring growth, japan ’ s economic model – based on government industrial policy, the main bank system, the seniority system, and lifetime employment – functioned successfully. by about 1970, however, japan had more or less caught up with the united states and europe. around this period, the population bonus started to fade. furthermore, the outbreak of the oil crisis and rapid appreciation of the yen put a brake on the high - speed economic growth. the continued upward trend in the working - age population and the absence of competitors in the production of manufactured goods enabled the japanese economy to grow steadily. however, downward pressure on the economy intensified as the increased presence of japan in international markets gave rise to heated trade friction while the plaza accord in 1985 led to an appreciating yen. in order to counter the downward pressure, measures were taken to expand domestic demand, which eventually led to the emergence of the economic