a central bank can and cannot do in order to get japan's economy back on track. in exploring the boundary between what a central bank can and cannot do, we have tried to find the right boundary by not being shackled by precedents, thinking hard, and acting with courage. even after short - term interest rates reached virtually zero percent, we adopted a new framework of quantitative easing and have been providing ample liquidity. this was unprecedented in the central bank history. in addition, we also came up with an extremely unusual measure for a central bank last fall, namely the direct purchase of the shareholdings of banks in the interests of financial system stability. i am nevertheless aware that voices have been heard calling for further efforts on the part of the bank of japan for revitalizing japan's economy. and, let me assure you here that we are committed to making the most of our wisdom and courage to further explore what we are able to do and to carry it out. thank you for your attention.

, if any, to debt repayment rather than to capital investment. such moves are reflected in the declining growth rate of money supply ( m2 + cds ). money supply posted 3 - 4 percent growth last year, but it has now slowed down to around 2 percent. a reason for this slowdown is probably a reaction to the rapid fund shift that was seen two years ago, but it is a fact that the current situation does not warrant high growth for the time being. money supply is the sum of deposits and cash held by firms and individuals, and deposits, which occupy a large part of it, drive its movement. since deposits are liabilities of a bank, they are determined as a result of financial intermediary activity on the part of banks and demand for funds on the part of firms. a substantial increase in money supply growth means a large expansion of banks'balance sheets. but, banks'balance sheets do not expand when it is rather difficult to expect an immediate increase in bank lending in the current situation where firms are repaying excess debt, which in itself is a necessary adjustment in the immediate future. in this context, the challenges facing the policymakers, including the bank regulators, are how to activate the financial intermediary function of banks and, simultaneously, how to enhance financial intermediation other than through banks. significance of capital market development when there are constraints on the credit creation activity of the banking sector, which shoulders the nonperforming loan problem, the use of capital markets, which are alternative channels for financial intermediation, might give an important clue for seeing japan's economy return to a sustainable growth path. banks and capital markets ought to complement each other to support a nation's financial system. i believe that the advantage of capital markets lies in their price discovery function in order to realize efficient fund allocation. as the economic environment is constantly changing, such a function is particularly important at the present juncture where the swift reallocation of productive resources is needed and there are increasing public expectations for nurturing and organizing capital markets in which various market participants become engaged in price formation. japan's capital markets are quite small compared with those of the united states ( chart 3 ). in terms of corporate sector funding, while the outstanding loan amount extended by commercial banks is some 300 trillion yen, the outstanding balance of corporate bonds and cp issued remains at some 80 trillion yen ( chart 4 ). furthermore, japan's capital markets are not matured and not