that led to the emergence of the bubble, thereby impairing the stability of the economy. the accommodative monetary policy following the louvre accord, reflected the external pressure to reduce the current account surplus as well as domestic concerns about the negative impact of the appreciation of the yen on the japanese economy. 2. the recent global financial crisis in the run up to the recent global financial crisis in the mid - 2000s, concerns were raised that a disorderly adjustment would occur through a sharp fall in the value of the dollar and a jump in long - term us interest rates. such a view focused on the widening us current account deficit and the large increase in foreign exchange reserves in emerging market countries, and the possibility that such countries may at some point become reluctant to continue financing the us deficit. however, as we all know, what came to pass was quite different. at the outset of the financial crisis, as market participants became extremely risk averse, a global flight - to - quality occurred. us long - term rates fell substantially as demand for us treasuries increased, and the dollar strengthened against most other currencies. this experience, similar to the japanese experience, also highlights the need to look beyond current account balances and identify what constitutes underlying imbalances. then the question becomes “ how can we identify the imbalances or distortions which could lead to unsustainable global imbalances? what type of information do we need to focus our attention on which is not sufficiently captured in current account data? ”. taking into account the additional experiences from the current financial crisis, i would like to point out two areas where attention should be focused. bis central bankers ’ speeches 2. 1 build - up of excess leverage first, the build - up of excess leverage in the economy. when we look at long - term trends in ratio - to - gdp of the savings and investment balance which is equivalent to the current account balance ( chart 6 ), one can notice that the net negative savings in the united states widens in the 2000s. these changes in themselves do not tell us whether such changes are sustainable or not. however, when we additionally examine the developments in household debt, we can see large deviations from longer - term trends ( chart 7 ). such developments are similar to the japanese situation in the 1980s, only the sector where excess leverage materialised is different. in japan, the build - up was in the corporate sector ( chart 5 ). certainly,

bank of japan ’ s april report of recent economic and financial developments1 bank of japan, 12 april 2002. * the bank ’ s view * * japan ’ s economy still continues to deteriorate as a whole, but the pace has moderated somewhat. with regard to final demand, net exports ( real exports minus real imports ) are gradually starting to increase while overseas economies are clearly gaining momentum for recovery. meanwhile, business fixed investment continues to decrease and private consumption remains weak. moreover, housing investment remains sluggish and public investment is also declining. final demand overall is still weak, but exports — which have a large impact on production — are starting to turn up recently. also, inventory adjustment is progressing further in many industries. reflecting these developments, industrial production appears to have stopped declining and also, the deterioration in business sentiment of firms, mainly in manufacturing, has almost ceased. however, firms maintain their stance on reducing personnel expenses given persistently strong excessiveness in employment. therefore, employment and income conditions of households continue to worsen, with the ongoing decrease in the number of employees and the growing trend in the rate of decline in wages. turning to the outlook, as for exporting conditions, the synchronized inventory adjustment in it - related goods worldwide is coming to an end except for some goods such as networking equipment. overseas economies, mainly in the u. s. and east asia, are likely to follow a recovery path. moreover, the yen is at low levels compared to last autumn. under these circumstances, exports are expected to pick up moderately for the time being. meanwhile, with respect to domestic demand, business fixed investment is expected to follow a downtrend for a while, judged mainly from leading indicators and firms ’ investment plans. private consumption is also likely to remain lackluster mainly due to worsening employment and income conditions. in addition, government spending is basically projected to continue a downward trend. while the recovery in exports and the weakness in domestic demand are mixed, industrial production is expected to remain almost flat for the time being. as for the further outlook, assuming that exports will continue to recover steadily, the economy as a whole will eventually hit bottom through the increase in production and rebound in corporate profits, mainly in manufacturing. overall, the economic deterioration in japan is projected to stop steadily, as production stops declining and then turns up reflecting the improvement in exporting conditions. still, the rebound in exports is expected to be modest for a while and there also remain various uncertain factors