The projected population decrease and retirement of baby boomers will cause a full-fledged labor force decline. To maintain economic vitality， efficiency must be improved by trimming the public sector and making better use of the labor force and savings. The economy will pull out of deflation in fiscal 2006， and with the consumption tax increase， consumer price inflation will average 1.6% over the coming decade. Real GDP will maintain the past decade’s average growth rate of 1.5%， while nominal GDP will surge to 2.3% per year. With deflation overcome， the long-term interest rate will gradually rise.