This means that regulation and supervision of financial institutions will be most effective in an environment of macroeconomic stability. A consistent and sound macroeconomic policy environment, with complementary monetary, fiscal and exchange rate policies, is essential. Major inconsistencies inevitably lead to an increase in economic and financial risks, to the point where the financial system itself becomes vulnerable.
Looking ahead, a virtuous circle among production, income, and spending is expected to continue, and Japan’s economy is projected to grow, as a trend, at a pace above its potential. On the price front, the year-on-year rate of increase in the consumer price index (CPI) for all items less fresh food has recently been accelerating to a range between 0.5 and 1.0 percent.