exports from asian to european countries. in particular, there seems to be not a small impact on china, which relies heavily on exports to european countries. second, the effects of financial contraction in europe, especially deleveraging of european financial institutions, are a matter of concern. while the presence of european financial institutions is not so large in japan and china, there are some other asian countries that rely bis central bankers ’ speeches heavily on those institutions. at this stage, as the pace of deleveraging by european financial institutions has been moderate and japanese financial institutions have partly been substituting such deleveraging, funding conditions of asian firms have not been deteriorating substantially. however, changes in europe might change the situation drastically. third, moves in international financial and capital markets. a decline in stock prices contains private consumption and other forms of economic activity through the negative wealth effect. changes in foreign exchange rates, for example, a substantial yen appreciation might, especially for japan ’ s economy, worsen corporate profits and put downward pressure on economic activity. in addition, it is very likely that a jittery market sentiment itself will make asian economic entities ’ sentiment cautious, thereby containing their spending. iv. japan ’ s and china ’ s efforts like that, the european debt problem has been affecting substantially both the chinese and japanese economies. therefore, for both china and japan, it is extremely important that the european debt problem will be fundamentally solved as soon as possible. toward achieving fiscal soundness and financial system stability, i believe it necessary to urge the eu to further accelerate their efforts. meanwhile, from a viewpoint of minimizing the spillover of the european debt problem to asia, first of all, each asian country has to make policy responses properly on both fiscal and financial fronts to cope with downward pressure on economic activity. in addition, in order to maintain the financial facilitation in asia, i believe there is not a small role japanese financial institutions should play. in fact, based on such judgment, japanese major banks have been actively providing loans. if those responses are smoothly carried out, a risk that economic entities ’ sentiment becomes substantially cautious could be reduced. of course, from a long - term perspective, it will be necessary to consider a case that, if by any chance, an extremely large negative shock emerges from europe. in asia, trading ties have been further deepened, along with the development of supply chains. it also means that, as revealed during the earthquake disaster in japan and the flooding in

the fixed - rate operation ), whereby a large amount of funds totaling approximately 10 trillion yen are to be provided at an extremely low fixed interest rate. this operation has contributed to encouraging a decline in longer - term interest rates. on march 17, 2010, the bank decided to expand the measure to encourage a decline in these rates by increasing the amount of funds to be provided through the fixed - rate operation to approximately 20 trillion yen, from the previous amount of approximately 10 trillion yen. meanwhile, the bank emphasized its stance on fighting deflation. regarding the “ understanding of medium - to long - term price stability ” ( the level of inflation that each policy board member understands, when conducting monetary policy, as being consistent with price stability over the medium to long term ; hereafter “ understanding ” ), the bank made it clear that the policy board does not tolerate a year - on - year rate of change in the cpi equal to or below 0 percent, and that the midpoints of most policy board members ’ “ understanding ” are around 1 percent. iv. moving toward sustainable economic growth as i have just explained, the bank is making use of various policy tools to maintain the extremely accommodative financial environment to overcome deflation. in the money market, the interest rates applied for the bank ’ s funds - supplying operations have declined to 0. 1 percent, and there are even cases in which financial institutions ’ bids fall short of the bank ’ s offers. market participants have become increasingly confident that they can acquire sufficient funds at a low interest rate. various types of interest rates have declined, including those for funds transactions between financial institutions, market rates on japanese government securities, corporate bonds, and cp, as well as loans extended to firms and households. it is hoped that the effects of monetary easing will further spread to other types of interest rates, encourage vigorous activity by various economic entities, and in due course lead to economic growth. however, a decline in interest rates alone may not be enough to stimulate activity by private sector entities, namely, firms and households, and thereby raise the level of overall economic activity. so, what is necessary to encourage vigorous activity on the part of firms and households? my belief is that the various economic entities need to free themselves from concerns about the future and regain confidence in their ability to achieve sustainable economic growth. in the post - world war ii period, japan has achieved high economic growth supported by the continuous efforts of the japanese people, who are hard - working