two causes of the global economic slump : the acute symptoms sparked directly by the financial crisis and chronic illness due to balance sheet adjustments. the policy responses of japan and other countries were taken to address these two causes. regarding the acute symptoms, many central banks took measures such as the purchase of particular financial assets in markets that had ceased functioning to prevent a worsening of the financial crisis and to ensure the flow of funds necessary for private economic activity, working to restore the functioning of markets. the bank also took policy steps that are unconventional for a central bank such as the outright purchase of cp and corporate bonds. in this regard, there has been some criticism that the bank has not implemented sufficient monetary easing, which is based on the argument that the relative increase in the fed ’ s balance sheet has been greater than that in the bank ’ s. such criticism shows a complete misunderstanding of the facts. the significant expansion of the fed ’ s balance sheet simply reflects the unfortunate situation that the functioning of u. s. capital markets, which account for about 70 percent of firms ’ fund raising, had seriously declined and there was no alternative but for the fed, as the central bank, to completely take over the role of the markets. although the functioning of corporate bond and cp markets in japan declined, the financial system, when compared with those of the united states and europe, nevertheless remained relatively stable. this is partly the result of the various efforts made based on the bitter experience since the latter half of the 1990s. it is for these reasons that the bank ’ s balance sheet has not expanded as much as that of the fed. rather, the size of the bank ’ s balance sheet already expanded significantly before the crisis. global financial markets have been regaining stability thanks to the extraordinary measures implemented by central banks around the world. therefore, reflecting the improvements in financial markets, central banks overseas have been winding up various crisis measures in a sequenced manner since last summer. in japan, too, since the functioning of cp and corporate bond markets has recovered, the bank wound up its outright purchases of cp and corporate bonds at the end of december 2009. nevertheless, as i always stress, the bank is prepared to act swiftly and decisively should concerns that financial market stability might be hampered re - emerge. with the response phase to the financial crisis behind us, the key policy challenge now is to how to guide the economy onto a sustainable growth path. while the bank lowered the interest rate level to virtually zero by reducing the policy interest rate

cycle : higher disposable income underpins greater household spending, which represents final demand, which then feeds into an expansion in corporate sales and profits. firms draw on the funds generated by greater sales and profits and on leverage arising from such means as cash borrowing for investments aimed at enhancing their added value. firms that increase the value of their products, services, and labor reflect this in selling prices, and then grow by acquiring the resources needed for further wage increases and investments ( chart 10 gives a simplified representation ). however, international comparisons show that, since the first half of the 1990s, household disposable income has more than tripled in the united states and about doubled in germany, but it has hardly increased in japan ( chart 11 ). i would like to share my views on the three dynamisms necessary to break out of this stagnation in disposable income, based on my own experience at a private firm. a. dynamism of japanese firms my first point is about the dynamism of firms. many japanese firms long wrestled with declining profitability and a deterioration in business performance. this stems from several factors, including the yen's sharp appreciation following the 1985 plaza accord and the bursting of the bubble economy in the early 1990s, coupled with the higher price of imported raw materials brought about by overseas economic growth and with the inflow of low - priced goods from developing economies. at the same time, firms faced strong social pressure in japan to maintain employment. they responded by overhauling their cost structure, cutting fixed expenses, such as personnel expenses - - including wages and " investment in people " - and research and development ( r & d ) expenses, all the while maintaining their existing business portfolios. this gave rise to excessive competition among firms in japan and waning profitability and growth potential. meanwhile, from 2008, firms'entry rates were in the range of 4 - 6 percent and exit rates were almost constantly below 4 percent. thus, both entry and exit rates remained low vis - a - vis international levels ( chart 12 ). this situation points to limited corporate metabolism, in terms of the redistribution of resources through the entry into and exit from businesses. this dearth of corporate dynamism, coupled with the onset of deflation in the latter half of the 1990s, seems to have precipitated sluggish growth in productivity and wages stemming from a lack of innovation and investment. in other words, in a deflationary