in financial institutions. it is important to steadily make efforts to transform even part of those deposits into risk money. i have so far explained how to strengthen the growth potential of japan ’ s economy from several angles. while there might be more, a basic pillar to strengthen growth potential will be to tap new markets both in terms of external and domestic demand, as well as to promote activation of labor and capital markets that support such challenge. fiscal sustainability should be ensured before market confidence is lost together with strengthening growth potential, it is necessary to steadily make efforts to ensure fiscal sustainability. japan ’ s government debt outstanding exceeds 200 percent of nominal gdp, which is the highest level among advanced economies. nevertheless, yields on government bonds remain low and stable. in my view, the most fundamental reason is that the market trusts that the japanese people have a strong will to achieve fiscal soundness and thus japanese government bonds will continue to be safe assets in the future. having said that, given that national debt is still increasing, one cannot rule out the possibility that confidence in the government bond market might collapse at once triggered by some cue. if that becomes a reality, there will be a significant impact on the financial system and the real economy, as the actual case of europe proved. given that increasing pressure on social security costs is likely to continue amid further aging, it is difficult to blaze a path for fiscal soundness just by strengthening growth potential. it is necessary to proceed with fiscal structural reform both in terms of expenditure and revenue before the market confidence is lost. iv. conduct of monetary policy pursuing powerful monetary easing toward overcoming deflation based on the aforementioned outlook and medium - to long - term challenges for japan ’ s economy, let me talk about the bank of japan ’ s monetary policy. the bank recognizes that japan ’ s economy is faced with a critical challenge of overcoming deflation and returning to the sustainable growth path with price stability. with such recognition, the bank has been pursuing powerful monetary easing in the framework of “ comprehensive monetary easing ”. specifically, first, the bank lowered the policy rate to around 0 to 0. 1 percent, which can be deemed a virtually zero interest rate. second, the bank is clearly committed to continuing with this virtually zero interest rate policy until it judges that price stability is in sight. with respect to the meaning of price stability, the bank clearly stated in a specific expression that “ on the basis of a year - on - year rate of change in the cpi, it falls in a positive

. they did not represent a significant improvement in the overall rate of return on assets. not merely were banks ’ own reported profits exaggerating the contribution of the financial sector to the economy, so were the national accounts. in the us, the share of gross value added of the financial sector as a share of gdp rose from around 2 – 3 % in the decade after world war ii to about 8 % in 2008, driven in large part by a rise in the gross operating surplus of financial intermediaries. and in the uk, in the past decade, the measured scale of the financial sector, compared to gdp, has roughly doubled to around 10 %. but this exaggerates the contribution of financial services. banks do not always charge directly for the services they provide. so the value added of the financial sector is measured by official statisticians ( using the united nations system of national accounts ) as the difference between interest receipts and payments of a “ reference rate of interest ” which attempts to measure the pure cost of borrowing funds. this convention overstates the true value added of the financial sector because it includes the return to risky lending represented by the difference between the hypothetical pure cost of borrowing funds and the return that is earned. but the fact that risk is channelled through an intermediation industry does not mean that the value added from risk - bearing in the economy is solely attributable to the existence of an intermediation sector. if companies financed themselves directly from households, the statisticians would regard the return on risk - bearing as value added created in that industry. financial intermediation does add value, but not as much as the statistical convention would suggest. moreover, a financial sector that takes on risk with the implicit support of the tax - payer can generate measured value added that reflects not genuine risk - bearing but the upside profits from the implicit subsidy. and even without an implicit subsidy the return to risk - bearing can be mismeasured. it is widely understood that an insurance company should not count as profits the receipt of premia on an insurance policy that will pay out only when a lowfrequency event occurs at some point in the future. but part of the value added of the financial sector prior to the crisis reflected temporary profits from taking risk and it was only after september 2008 that much of that so - called economic activity resulted in enormous reported losses by banks. it is possible to make a very rough estimate of the possible size of this distortion