and improved labor market conditions, and thereby generate a virtuous cycle in which wages and prices see sustained increases. this is what makes it necessary for households in japan to become more tolerant of price increases and for economic entities to come to terms with the view that prices are bound to rise to some extent. in other words, it is important to bring about a society in which the whole country can feel and enjoy the positive merits and benefits of economic growth that exceeds the rise in prices. japanese firms that are expanding, diversifying, and upgrading their overseas activities, such as industrial production, sales, investment, and fund management, are experiencing firsthand the growth of emerging economies in asia and elsewhere. i think this holds true for firms in kyoto as well. there is no time to waste in moving forward with reforming the industrial structure, social system, and economic structure so that japanese firms will realize growth amid mounting competition and japan's economy as a whole will also achieve growth through digitalization and the realization of a carbon - neutral society. i believe it is imperative that the bank, guided by its mandate of achieving price stability and ensuring the stability of the financial system, play its role to ascertain the extent to which monetary policy can be effective, and continue to provide appropriate support for japan's sustainable growth. thank you. economic activity, prices, and monetary policy in japan speech at a meeting with local leaders in kyoto ( via webcast ) march 3, 2022 nakagawa junko member of the policy board bank of japan i. economic developments ii. price developments iii. the bank's monetary policy chart 1 i. economic developments overseas economies ( 1 ) confirmed new cases of covid - 19 ( 2 ) global pmi ten thous. persons united states europe india s. a., di latin america other emerging economies feb. 1 / 20 manufacturing services aug. 1 feb. 1 / 21 aug. 1 cy 07 feb. 1 / 22 note : figures for manufacturing are the j. p. morgan global manufacturing pmi. those for services are the j. p. morgan global services business activity index. source : ihs markit ( © and database right ihs markit ltd 2022. all rights reserved. ). note : the latest figures are for february 25, 2022. figures for the united states, taiwan, and hong kong are from the centers for disease control and prevention ( cdc ), the taiwan ministry of health and welfare, and the hong kong

cost of recent failures reinforces lessons of the past for banks and supervisors, including the need for continuous vigilance against causes of bank failure such as fraud, credit concentrations and rapid entry into new and unfamiliar activities. in addition to these risks, institutions face the challenge of fighting both complacency and competitive pressures with regard to their lending practices. there are some recent indications that the industry is aware of these challenges. the most recent federal reserve senior loan officer opinion survey suggests that banking organizations are becoming more sensitized to risk and are continuing to firm their lending practices. in particular, the percentage of domestic banks tightening standards on commercial and industrial ( c & i ) loans was the largest since the november 1998 survey. in addition, risk premiums on c & i loans have also risen. while firming loan standards and terms is one technique for managing credit risk, sound risk - management systems also involve testing the performance of borrowers under more stressful conditions to reveal weaknesses. when strong conditions largely mask the susceptibility of marginal borrowers, stress testing is invaluable for revealing the magnitude of portfolio risk posed by more challenging economic conditions. other factors that are important for strong asset quality include maintaining adequate pricing amidst fierce competition from other banks and non - banks alike. some organizations are responding to these pressures by moving lower on the credit quality spectrum in a reach for higher nominal yields. in a special question added to the latest lending survey, banks indicated that demand for c & i loans has somewhat strengthened as below - investment - grade borrowers have found unfavorable conditions in the high - yield bond market and have turned to banks as an alternative. the majority of banks reporting additional demand from these borrowers also indicated that they were fairly receptive to these customers. while lending to higher - risk borrowers presents opportunities, banks must ensure that their risk - management systems can properly discern the difference between nominal and risk - adjusted yields, identify credit concentrations, and allocate enough capital and reserves to offset the higher risk of these loans. banks without these safeguards, as well as limits and adequate tracking and reporting to senior management and their boards, have in the past experienced significant problems and sometimes failure. credit quality issues are not the only areas of supervisory focus. the trend of narrowing interest margins at many banks has been coupled with lengthening asset maturities and declining core deposits. the erosion in bank core deposits is to some extent attributable to competitive pressure from the marked