factors. structural change and pro - growth policies were coalesced synergistically with hard work ethics. in many ways, asia has maximised its comparative advantage with international trade as a major source of growth over several decades. economies were transformed from being driven by the traditional commodity based sector, to one that was driven by the manufacturing sector that produced goods for the increasingly affluent domestic markets and for the export market. this strategy and economic transformation in asia has also been facilitated by the steady inflow of foreign direct investment into the region. given the region's competitively - priced factors of production, combined with pro - business economic policies, global producers relocated their production bases to asia. in terms of robustness, this model has survived several global slowdowns. even in the face of the 1997 - 1998 asian financial crisis, the affected countries recovered rapidly and resumed strong growth. the fundamental strength of the asian economies has also been its economic flexibility to adjust to changing conditions. the challenge before us now is whether asia, going forward, will rise to the new challenges that is being presented by the rapidly changing global environment in the aftermath of the current global economic and financial crisis. while asian financial systems have shown a high degree of resilience during this global financial crisis, most asian economies have been markedly affected by the economic spillover effects of the crisis. by the second half of 2008, what was a “ localised ” financial crisis had spread to the rest of the world. however, the financial reforms and development of the financial systems in asia during this decade since the asian crisis have, to a significant extent, insulated our financial systems from these developments. however, the openness of the asian economies have resulted in a significantly slower growth with economic contraction occurring in several countries. in the immediate future, several favourable factors will support growth in asia. strong fundamentals, pro - growth policies and structural factors will support an early recovery. this is also being reinforced by greater regional integration. going forward into the future, the global shifts taking place calls for a new economic model, one that would leverage on regional strengths, address the current and future risks and recognise the new global opportunities. in the context of these developments, this conference will be discussing these issues and the new directions that are likely to emerge for asia. also important are the lessons that we can draw from the european experience. the agenda is for us to discuss the alternative economic models for the future, including the financial aspects and the role of policies

although many small firms still see their financial positions as weak, the overall financial positions of firms, including small ones, have continued to show signs of easing. the cpi ( excluding fresh food ) is declining on a year - on - year basis due to the substantial slack in the economy as a whole, but the decline leveled out in august 2009 and the moderating trend of decline has continued. the outlook for the trend change in prices is determined by the aggregate supply and demand balance and the medium - to long - term inflation expectations. it should be noted that, statistically, the year - on - year rate of change in the cpi will decline for a year due to the introduction of subsidies for high school tuition and other policy measures in fiscal 2010, but in assessing the trend change in prices, it is necessary to exclude such one - off factors. in terms of the trend change in prices, with medium - to long - term inflation expectations likely to be stable, the year - on - year rate of decline in the cpi ( excluding fresh food ) is expected to continue to moderate as the aggregate supply and demand balance improves gradually. while i have thus far explained the baseline scenario for economic activity and prices, the bank is also fully aware of the risks concerning such scenario. upside risks to the scenario are developments in emerging and commodity - exporting economies. the robust growth of emerging and commodity - exporting economies has driven the pick - up of japan ’ s economy. if the growth in those economies further accelerates, it will pose an upside risk to economic activity in japan. meanwhile, downside risks, although somewhat diminished, include the possible consequences of balance - sheet adjustments in the united states and europe as well as potential changes in firms ’ medium - to long - term growth expectations. moreover, attention should continue to be paid to various recent international financial developments and their effects. with regard to prices, there is a risk that inflation will rise more than expected in the event of a rise in commodity prices due to higher growth rates in emerging and commodity - exporting economies. on the other hand, there is also a risk that the rate of inflation might decline due, for example, to a decline in medium - to long - term inflation expectations. ii. conduct of monetary policy the bank recognizes that japan ’ s economy is faced with a critical challenge of overcoming deflation and returning to a sustainable growth path with price stability. therefore, the bank has been implementing various measures, taking into account the two factors