national burden, ” which includes the fiscal deficit, the same conclusion still holds. although this suggests that shouldering a somewhat heavier burden for somewhat better safety nets is a reasonable option for japan, the question of how much remains. all in all, it is not easy to achieve a national consensus on how much higher benefits and burdens will be appropriate. it may take some time before japanese people make a choice. iv. to the second stage of structural reforms the worst scenario is that japan will fall into a “ heavy burden but insufficient benefit ” society, which might actually take place without a gain in productivity. it is exactly in this context that the structural reforms should be propelled further. among many reform agenda, i will focus on the importance of facilitating further integration of japan into the global economy. further integration into the global economy although at home resources are constrained by the declining population, there is a great source of usable technology, labor, and management skills abroad. i believe that what determines a nation ’ s long - term economic growth is not its population but its flexibility in taking advantage of globally available resources. let me discuss two aspects of globalization : use of the foreign management resources and use of foreign labor force. the first aspect is to introduce more foreign management resources. as chart 10 shows, although foreign direct investment into japan has been increasing considerably, the stock of direct inward investment as a ratio to nominal gdp is still much lower than the same ratio for other countries. one good example is the united kingdom in the 1980s. tax incentives, infrastructure improvements, and other measures were taken to promote foreign inward investment. japanese manufacturers, encouraged by the u. k. government, decided to build their factories here ; nissan was an early good example and many others, particularly automobile companies and electrical appliances companies, followed suit. the core of the reform in the united kingdom was perhaps its willingness to be open to the world. many years later in the late 1990s, it was again nissan that became a model, this time, of demonstrating the merits of learning from foreign management. mr. carlos ghosn came to nissan as a new president, transforming the company at a crisis into one with years of record performance. the revival of nissan, by creating a more competitive environment, contributed to invigorating the entire automobile industry and triggered a large - scale restructuring of suppliers. the second aspect of global integration is more extensive use of foreign labor. some people express their concern that if the introduction of foreign workers is too rapid,

gdp declined to the lowest level since the early 1990s. in connection with the structural adjustments, as chart 4 shows, progress has also been made in reducing nonperforming loans. as far as major banks are concerned, they as a whole seem to be hitting the march 2005 target, namely, lowering the share of nonperforming loans in total credits to half of that in march 2002. of course, japan ’ s financial institutions are still facing quite a few problems. in this regard, they should step up their efforts to reduce nonperforming loans and contribute to corporate restructuring. and they should be well prepared for the removal of the blanket deposit insurance, which is scheduled for april 2005. as the structural adjustments have progressed, an opportunity for sustained growth is finally arising. in order to turn this nascent opportunity into full - scale revitalization of the economy, both the private sector and the government should work harder. ii. conduct of monetary policy on the part of the bank of japan, we continue to maintain the monetary conditions which should help deflation come to an end. chart 5 shows that deflation has been easing but the year - on - year change in the consumer price index ( cpi ) has not yet reached positive territory even with the help of upward one - off factors including a rise in rice prices. based on the assessment that the underlying trend of the cpi is still moderately negative, the bank is conducting an extremely accommodative policy with three features. first, the bank is providing unusually ample liquidity to financial markets. the so - called “ quantitative monetary easing ” keeps short - term interest rates at almost zero, thereby ensuring the stability of financial markets, which in turn supports economic activity. second, the bank is conducting its policy with the commitment to continue quantitative easing until deflation ends. the resultant “ policy duration effect, ” by working on expectations about future monetary policy, contributes to further stabilizing financial markets. third, the bank is making efforts to enhance the transmission mechanism of monetary easing. for instance, the bank has already been expanding the types of money market operations. moreover, the bank is eagerly communicating with market participants and other authorities as to how to expand the securitization market. of the three features of the current monetary policy, let me elaborate on the second one : the bank ’ s policy commitment. in this commitment, the bank will maintain quantitative easing until the core cpi registers stably zero percent or an increase year - on -