of policy makers to formulate and implement an appropriate mix of policies. imbalances and asia adjusting imbalances, however, is easier said than done. the united states now imports 50 % more than it exports. if imports are to grow by 5 % per year, exports must grow by 7. 5 % just to keep the dollar amount of current account deficits at present levels. viewing from a slightly different angle, even if the income elasticity of u. s. imports to u. s. demand growth were to suddenly drop to zero while exports continued to grow at 5 %, it would take nearly 5 years before the deficit halved. how then could we realize this significant adjustment? what should asian economies, which are running surpluses, do in the context of global imbalances? first of all, economies should, in principle, accept adjustment through market forces. rigidity can lead to a build - up of stress in the system. many words have already been spent on this subject, and i will not repeat them. i would just note that, in our recent meetings with central bank colleagues from asia, they were fully aware of the need for flexibility and the challenges facing them in pursuing that goal. in addition to enhancing flexibility, today i would like to explore another option : the possibility of asian economies enhancing absorption in their economies. for japan, demography would aid the adjustment process. academic literature tells us that the rate of savings tends to decline in an aging society. in our case, as baby - boomers begin to retire in the next few years, they would start drawing down their savings. this should gradually influence the overall rate of savings and hence the level of external surplus. in this context, one important element would be rebuilding confidence in the social security systems that are now under pressure from the rapid aging of the population. in many non - japan asian economies, the government does not provide a sufficient social safety net. this is one area where a quick action is needed. in a financial context, one challenge is to explore a better use of capital. emerging asia collectively earns about 150 billion dollars a year in surpluses. these dollars are often invested in the united states. meanwhile, as developing economies, emerging asia has an almost insatiable appetite for capital. there are still numerous investment opportunities out there in the region. today, these ventures are often financed by overseas investors, often from the united states. at a risk of oversimplification, i would

earlier, the financial system in japan has been regaining stability, and the blanket guarantee of deposits will be fully lifted on april 1, 2005. financial institutions will be expected to amplify their efforts to develop innovative services tailored to customer needs, thus supporting economic activity. the bank ’ s basic stance regarding financial system policy must shift its focus in response to this changing environment : from crisis management to supporting private - sector initiatives toward providing more efficient and advanced financial services via fair competition, while maintaining overall system stability. in order to contribute to enhancing the functioning and robustness of the financial system, the bank will actively encourage financial institutions ’ efforts to improve their business activities, and devise various ways to enhance its own business. conclusion although japan ’ s economy is at a pause, it is expected to continue recovering with the further expansion of overseas economies and progress in adjustment in it - related goods. to ensure that this recovery will become sustainable, the bank considers it essential that a wide range of economic entities continue to make efforts to revitalize the economy. the bank is determined to firmly support japan ’ s economy from the financial side by maintaining monetary easing with the commitment based on the cpi, in the current situation where the cpi continues to fall slightly on a year - on - year basis. it has become increasingly important for the bank to pursue more advanced services in a wide range of areas as well as ensure well - disciplined management to properly carry out the duties entrusted to it as the nation ’ s central bank. in light of this, the bank has for the first time formulated a medium - term strategic framework ( mtsf ) for fiscal 2005 - 2009, which sets out the bank ’ s management policy for the next five years. the bank is committed to continuing its efforts, through the steady implementation of this mtsf, to retain public confidence and fulfill its mission of contributing to the sound development of the economy.