of the aftereffects stemming from the bursting of the bubble has been resolved. in addition, the continuous decline in property prices is another matter of concern. furthermore, the consolidation of financial institutions is not merely a matter of size. the key to successful consolidation is to become more efficiently managed through a strategy of “ selection and concentration ”, and it will take more time for such consolidation to bear fruit. nevertheless, at this moment, it should be noted, and welcomed, that amid the irreversible trend of financial globalization and the advance of information technology it is the initiative of the private sector, not that of the public sector, which will pave the way to the new economy. parallel with such moves on the part of major financial institutions, progress has been made in direct financing such as the establishment of mothers on the tokyo stock exchange in november 1999, followed by nasdaq japan established in early may at the initiative of the private sector and which will start operation in june. i have repeatedly emphasized that at the present time when structural adjustment is much needed, abundant domestic savings should be utilized to finance investment in the form of “ risk capital ”. and, i thus welcome that such markets have been inaugurated to fulfill an intermediary function for risk capital. new phase of corporate restructuring second, efforts toward structural reform have also been made in terms of corporate restructuring, and i think we have begun to observe the result of such efforts. when talking about restructuring and the results in the recent period, those in the business world say that they have been pursuing restructuring for a long time. i fully commend past efforts toward corporate restructuring, but what i would like to emphasize here is that the restructuring witnessed since last year is of a different nature compared with the past and such a tendency has recently become more distinct. in my view, past restructuring focused mostly on cost reductions, in other words, downsizing. to the contrary, current restructuring, though initially having a tendency toward downsizing, has shifted to focus on business content or reengineering, which means the restructuring of production and management systems which have been rendered inefficient. i believe that the restructuring of japanese firms has truly entered a new phase. behind such a change in the focus of restructuring, those in the business world, as in the case of financial institutions, experienced a protracted recession and were faced with a very severe financial environment, particularly from 1997 to 1998. during this period, many small and medium -

sized firms faced funding difficulties, and from the summer to the autumn of 1998 when financial and capital markets both at home and abroad were under stress due to such factors as the russian crisis, not a few representative big japanese firms also faced similar difficulties. such an experience linked with changes in the accounting system, namely the consolidated and mark - to - market methods, brought about the recognition or a sense of crisis on the part of firms that japan ’ s traditional corporate governance including the main bank system and cross - shareholdings would not be viable for long and that for their own survival they should enhance their evaluation in the capital market through such measures as improved capital efficiency. all this seems to have triggered current full - fledged restructuring. current restructuring is different from past downsizing in its nature because firms are required more than ever to efficiently allocate resources and improve profitability. for example, since big firms engaged in the production of electric machinery and chemicals could not enjoy economies of scope any more, they concentrated on areas where they had the most edge, recently termed “ areas of core competence ” in japan, and at the same time withdrew from or scaled down unprofitable business areas. and, among basic materials industries burdened with excess capacity, there have been movements toward consolidation including mergers and acquisitions and obsolete equipment beginning to be scrapped. recent restructuring and consolidation in the corporate sector, including financial institutions, extends beyond the existing keiretsu and corporate group frameworks, and in some cases has proceeded globally with the involvement of foreign capital. also, good use is being made of such new methods as mergers and acquisitions and the holding company format. last year, mergers and acquisitions increased substantially and direct investment into japan, which indicates foreign capital inflows, reached a record high 1. 5 trillion yen on a balance of payment statistics basis, three times the prior - year level. of course, it cannot be denied that the recovery of corporate profitability has been largely attributable to past restructuring, that is, downsizing centering on a reduction in labor costs. however, current restructuring can be expected to exert pressure on firms to withdraw from low profitability areas and concentrate resources on highly profitable and strategic areas such as investment in information technology - related areas. we continue to pay close attention to how the recent development will lead to the recovery of corporate profitability and competitiveness, and eventually the restoration of corporate vitality. possibility of an information technology ( it ) revolution third, the it revolution seems