. on the other hand, the improvement in economic activities has not stimulated corporate demand for external funds, since firms ’ cash flow is at a high level in parallel with recovery in profits. moreover, firms continue to reduce their debts as part of their balance - sheet restructuring measures. as a result, credit demand in the private sector has continued to be basically stagnant. in view of this, the underlying tone of private banks ’ lending remains sluggish. recently, however, the expansion in the year - to - year decline seems to be ceasing. issuance of corporate bonds and cps has been steady. money stock ( m2 + cds ) grew slower in august compared with the previous month on a year - on - year basis. recently, funding costs for firms are increasing, albeit gradually, due to the rise in money market rates after the termination of the zero interest rate policy. in this financial environment, there seem to be no substantial changes in the lending attitude of financial institutions and easing of corporate financing conditions. “ the bank of japan will encourage the uncollateralized overnight call rate to move on average around 0. 25 %. ”

through this measure. on june 25, the bank announced it had selected 66 counterparty financial institutions for fund - provisioning through public application. not only major banks, but also a wide range of other financial institutions, including regional banks, became counterparties. each counterparty submitted its plan for strengthening the foundations for economic growth to the bank, which is currently evaluating each counterparty ’ s eligibility based on the amount of lending and investment carried out under the plan in the april - june quarter of 2010. based on the evaluation, the bank will determine how much it will lend in its first disbursement. let me next explain the background to the bank ’ s decision to introduce this fund - provisioning measure. iii. strengthening the foundations for economic growth a. deflation as i mentioned earlier, japan is experiencing deflation. price instability, including deflation, has various negative effects on the economy and society. for instance, it reduces the efficiency of resource allocation, restrains economic activity by making economic outlook uncertain, and distorts income distribution by changing the real value of contracts, assets and liabilities, which are typically in nominal terms. in addition, there are problems particular to deflation. for example, it has been pointed out that debtors with a high propensity to consume tend to restrain their spending when the real value of their debt rises, weighing down the economy. in addition, due to the zero bound on nominal interest rates, real interest rates do not fall to the level required by the level of economic activity. declining inflation rates are a trend shared by all major economies around the world. it is only in japan, however, that prices in terms of the cpi excluding food and energy ( the corecore cpi ) have been falling. the main reason for this is the large output gap, which has remained consistently negative since the second half of the 1990s. what is more, the gap has been much larger than in other major economies. this is attributable to the excess supply capacity that has not been adequately adjusted relative to the level of domestic demand, which has stayed sluggish since the bursting of the economic bubble. weakness in domestic demand was prolonged by the delay in balance - sheet adjustments by various economic entities and the lack of forward - looking expenditure since the bursting of the economic bubble. in particular, the delay in the disposal of impaired assets by financial institutions weakened their financial intermediary functions, impairing their ability to provide sufficient funds for new areas