ryuzo miyao : economic activity and prices in japan and monetary policy summary of a speech by mr ryuzo miyao, member of the policy board of the bank of japan, at a meeting with business leaders, tokushima, 22 september 2010. * i. economic activity and prices a. overview * * first, i will talk about the current situation of the japanese economy. at present, an issue of concern is the possible negative impact of instability in foreign exchange and stock markets on corporate profits and business and consumer confidence. in this environment, there has been a slowing of exports to east asian and other emerging economies that have driven the recovery from the sharp decline after the bankruptcy of lehman brothers. private consumption, meanwhile, remains relatively firm, supported by the extremely hot summer this year and a last - minute increase in demand for durable consumer goods ahead of the expiration of government subsidies. on the whole, japan ’ s economy shows further signs of a moderate recovery. b. developments in overseas economies let me now look at developments in those overseas economies that are influencing japan ’ s export - driven recovery. among the emerging economies, the chinese economy has been boosted by fixed asset investment – comprising business fixed and real estate investments – as well as private consumption, as a result of major stimulus measures to the value of 4 trillion renminbi. since the rapid growth accelerated speculative investment in real estate, making it difficult for middle - class citizens to buy housing, the authorities implemented a series of measures, including window guidance, to restrain the increase in real estate transactions. subsequently, real estate investment slowed down and production and fixed investment in sectors related to construction decelerated. still, the rate of economic growth remains high. with respect to those neighboring asian nations whose economies have been spurred by exports to china, although the rate of expansion is showing signs of deceleration, growth remains high with domestic demand still robust. with regard to economic activity in the euro area, production has expanded due to increasing exports to emerging economies, although the growth differs by country. for example, in germany its strong recovery has been the main driving force, with real gdp for the april – june quarter of 2010 having grown at an annualized 9 percent from the previous quarter. by contrast, greece, which is saddled with the burden of fiscal consolidation, has recorded negative growth ; and spain, with its burst housing bubble, has not been able to find a way out of a low growth predicament. for the euro

. downside risks to japan ’ s economy, however, still require close monitoring amid the growing uncertainty about the future, especially for the u. s. economy. the bank recognizes that japan ’ s economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability. with such recognition, the bank has been striving to pursue powerful monetary easing. the bank will continue to carefully examine the outlook for economic activity and prices and, if judged necessary, will take policy action in a timely and appropriate manner. b. fund - provisioning measure to support strengthening of the foundations for economic growth the strong easing measure discussed so far is designed to work on short - term cyclical economic activity, but it is important that japan maintain and enhance its medium - to long - term economic growth potential. recognizing this, the bank sought a way of contributing to such a task as the central bank, and in june 2010 introduced the fundprovisioning measure to support strengthening the foundations for economic growth, with loans totaling 3 trillion yen. this measure has the same characteristics as other fundprovisioning measures, in that it supplies funds against eligible collateral submitted to the bank, but it differs in that the maximum duration of loans is four years and loans are provided to each counterparty based on the counterparty ’ s actual amount of lending and investment carried out as part of the plan to strengthen the foundations for economic growth submitted to the bank. the fund - provisioning measure does not aim to fully fund the foundations for economic growth, but to act as a catalyst for financial institutions to make efforts toward strengthening the foundations for economic growth. the first new loan disbursement was carried out at the end of august 2010, involving more than 460 billion yen provided to 47 borrower financial institutions, ranging from major banks to shinkin banks, that span a wide range of business areas and regions. records of individual investment or lending by these institutions submitted to the bank, making them eligible to receive funds from the bank ’ s first loan disbursement, show that investment and lending were conducted in broad areas : investment or lending in “ environment and energy business ” was particularly prominent, followed by investment or lending in “ development and upgrading of social infrastructure, ” “ medical, nursing care - and other health - related business, ” “ business in the content creation industry, ” and “ disaster prevention business. ” the results of the first new loan disbursement also show that loans were made for