As described in detail in the Outlook for Economic Activity and Prices, or the Outlook Report for short, the following four major risks concerning the outlook for economic activity warrant attention: (1) uncertainty related to developments in overseas economies; (2) uncertainty with regard to reconstruction-related domestic demand; (3) uncertainty associated with firms’ and households’ medium- to long-term growth expectations; and (4) issues related to Japan’s fiscal sustainability.
Among those risks, I personally am particularly mindful of those relating to adverse spillovers of the European sovereign debt issues and political developments to the baseline scenario. There are mainly two types of price-associated risks. The first type concerns developments in firms’ and households’ medium- to long-term inflation expectations; the second type relates to developments in import prices.