recognition among financial institutions and related parties that an appropriate evaluation of the economic value of nonperforming loans ( npls ), and higher provisioning and more aggressive write - offs of these loans based on such an evaluation, are important in accelerating the disposal of npls. further efforts have been made in this direction. in fiscal 2002, japanese banks recorded a large net loss for the second consecutive year. this result clearly reflected the severe conditions faced by the japanese financial system. at the same time, it signified the aggressive disposal of npls as shown by the substantial decrease in npls outstanding at major banks. the time has now come to move to the final stage to restore the effective functioning of the financial system, keeping in mind the complete removal of blanket deposit protection scheduled in april 2005. this removal, in my view, should not be perceived simply as a change in the type of coverage of deposit insurance protection. instead, it should be recognized as a turning point for financial institutions in the reform of their management. protection has been provided as a temporary buffer to avoid potential confusion. following the complete removal, financial institutions must pursue a dynamic management strategy based on their own judgment. to this end, it is the financial institutions themselves, not the regulatory authorities, that should take the initiative in dealing with npls. moreover, they should redouble their efforts to strengthen their earnings power besides accelerating the disposal of npls. v. disposal of npls and corporate revitalization in addition to the appropriate evaluation, higher provisioning, and more aggressive write - offs in the disposal of npls, increasing attention is being paid to the importance of corporate revitalization from the viewpoint of promoting the reform of industrial structure. the industrial revitalization corporation of japan ( ircj ), which began operation in may this year, recently decided to support four firms. the ircj will subsequently purchase the loan assets of these four firms from lenders other than their main bank, decide on a restructuring plan and then implement it. individual financial institutions, major banks in particular, are establishing a subsidiary specializing in corporate revitalization. moreover, we observe an increasing number of cases in which financial institutions set up an internal section specifically devoted to corporate revitalization, and form an alliance with outside experts like lawyers and certified accountants. the success of corporate revitalization requires a speedy and decisive response on the part of both firms and financial institutions. some firms with useful technology and expertise find it difficult to improve

toshihiko fukui : economic activity and recent financial developments in japan summary of a speech by mr toshihiko fukui, governor of the bank of japan, at a meeting with business people in nagoya, 3 september 2003. * * * i. current situation of the japanese economy and policy focuses a. current conditions economic activity as a whole has been flat since february this year, as has been described in the bank of japan's monthly report of recent economic and financial developments. recently, however, we have gradually begun to observe some signs of improvement. for example, machinery orders and the second - quarter gdp have turned out to be better than anticipated, and stock prices continue to rise. such domestic developments should be understood in a global context, as economic globalization progresses and the japanese economy deepens its ties with overseas economies even further. as you all know, during the first half of this year, the world economy was mired in the adjustment process that followed the it boom of the 1990s, which came to an end in the fall of 2000. furthermore, uncertainty about the economic outlook was amplified by the war in iraq and severe acute respiratory syndrome ( sars ) in east asia. uncertainty about the financial system problem in japan persisted, and the fall in stock prices, including bank shares, became rather marked. fortunately, these uncertainties have decreased since the early summer. the actual operation of the war in iraq concluded relatively early, and the effects of sars have been less than many people feared. we have even begun to observe some signs of recovery in the demand for it - related goods, although we have not yet fully confirmed the extent of their adjustment. in these circumstances, pessimistic views on the economic outlook have receded, and an increasing number of people have become confident about a rebound of world economic growth from the second half of this year. for example, in the united states the so - called central tendency of projected real gdp growth for 2003 among members of the federal open market committee ( fomc ) has been revised upward, to 2. 5 to 2. 75 percent. this projection implies that real gdp growth would rise to the 3 percent level for the second half of 2003, from around 2 percent for the first half. for 2004, the fomc members predict further acceleration of real gdp growth to 3. 75 to 4. 75 percent. in asia, china is most likely to return to a stable growth path after overcoming the negative impact of sar