' s decision to participate in the asian bond fund, which is a fund for investment in u. s. dollar - denominated east asian sovereign bonds. this is part of central bank cooperation to further develop asian bond markets, which was discussed at the executives'meeting of east asia - pacific central banks ( emeap ). the initial size of the asian bond fund is only about u. s. $ 1 billion. we hope that with an increase in trading volume and liquidity as well as an expansion in the number of investors not only from the region but also from all over the world, the asian bond fund will generate momentum for the further expansion of asian bond markets. this would certainly contribute to facilitating funding by japanese companies in east asia. we also strongly hope that such cooperation among central banks in east asia will strengthen financial systems in the region. third, the bank is further improving the quality of information and analysis relating to economic and financial developments in east asia. particularly noteworthy are the rapid development of the chinese economy and the expansion of japanese companies into china - related businesses. in light of such developments, the bank is preparing to establish a representative office in beijing by the end of the year. through this office, the bank aims to gather more detailed information about the east asian economy. bearing in mind the relationship between japan and the rest of east asia that i have described, we will make our utmost efforts to meet the challenges facing the japanese economy in the broader context of ongoing globalization.

upon the foreign exchange rate system in east asia. for companies vigorously engaged in business in east asia, the stability of east asian currencies is a prerequisite for expansion. as i have often stated elsewhere, foreign exchange rates should be determined in a stable manner reflecting economic fundamentals. in an open economy, we cannot simultaneously achieve a fixed foreign exchange rate, free capital flows, and independent monetary policy. for example, many industrialized countries, including japan, enjoy free capital flows and independent monetary policy at the expense of having floating foreign exchange rates. on the other hand, china seeks a de facto fixed foreign exchange rate and independent monetary policy at the expense of regulated capital flows. although china is gradually easing regulations on capital outflows, the deregulation of capital flows may cause instability if unaccompanied by reform of the domestic banking system, as the experience of the asian currency crisis shows clearly. one orthodox way to achieve sustainable economic growth is to gradually remove capital controls and make the foreign exchange rate system more flexible in tandem with reform of the domestic banking system and strengthening of the financial system. v. role of the bank of japan finally, let me discuss the role of the bank of japan in the context of deeper interdependence between japan and the rest of east asia. in brief, what the bank can do is to provide japanese companies with a stable financial and economic environment to support their innovative business activities under globalization. let me elaborate. first, needless to say, the sound development of the japanese economy is one of the most important prerequisites for stable economic growth in east asia. to this end, the bank is working to overcome deflation and put the economy back onto a sustainable growth path by maintaining the current quantitative easing policy. second, the bank is strengthening regional financial cooperation with central banks in the rest of east asia. such a direction has gained further momentum since the asian currency crisis of 1997 - 98. in the wider context of ensuring the stability of the international financial system, the importance of establishing a collective and regional financial support system has been widely recognized among east asian economies. in this regard, japan has already entered into currency swap agreements, in the form of liquidity support, with korea, thailand, the philippines, malaysia, china, and indonesia. discussion on developing bond markets in east asia is underway in various international forums. the bank has taken an initiative in such discussions in close cooperation with the japanese government. recent examples include the bank