yutaka yamaguchi : systemic risk speech by mr yutaka yamaguchi, deputy governor of the bank of japan and chairman of the committee on the global financial system, at the third joint central bank research conference on risk measurement and systemic risk held in basel, switzerland, 7 march 2002. * * * introduction : a brief history of the systemic risk conference ladies and gentlemen, i am very pleased to join you at the third conference on “ risk measurement and systemic risk ”. this theme has gained increasing importance since the first conference in 1995. the keen attention paid to it by the international community is evident in the fact that a number of international fora now endeavour to spot potential financial vulnerabilities which might lead to systemic crisis in the global market. actually, the term “ systemic risk ” makes me a bit uneasy as it unfortunately has too realistic a connotation in my own country. i am looking forward to taking home new insights on this subject, and, as chair of the committee on the global financial system co - hosting this conference, i would be happy if you could do the same. the aim of this series of conferences is to enhance our understanding of the mechanism through which a systemic shock is generated and transmitted. meanwhile, during the six years since the first conference, we have witnessed significant changes in the world of finance. as a result, the focus of the conferences has changed over the years. if i may generalise at the risk of oversimplification, the centre stage of the first conference in 1995 was occupied by var methodology, which was then gaining acceptance at leading financial institutions. reporters explored how risk could be quantitatively measured and what would be the real - life meaning of such measures. well, in real life, crisis erupted in asia in 1997 triggered by events that were largely beyond the bounds of standard var methodology. naturally, discussions at the second conference in 1998 were much influenced by the asian crisis. we began to realise that market microstructure theory could shed light on market dynamics in times of stress. our third conference today carries this theme further, with many papers paying attention to what creates stress and how stress is contagious. triangular view of systemic risk this brief history of our conference series suggests that with the structural changes in financial markets, systemic risk has revealed a few faces in actual crisis and therefore the nexus between them has to be more deeply explored. conventional thinking or the narrowest coverage inextricably tied systemic risk to banks. systemic disturbances

bank of japan ’ s may report of recent economic and financial developments1 bank of japan, 21 march 2003. * the bank ’ s view * * economic activity remains flat as a whole, but there is greater uncertainty about the economic outlook. with regard to final demand, business fixed investment is recovering gradually, although one of the leading indicators suggests possible weakness ahead. meanwhile, private consumption continues to be weak, housing investment also remains sluggish, and public investment is declining. while domestic demand has not shown clear signs of recovery, net exports remain virtually level. industrial production is basically level in response to these developments in final demand. as for the employment situation, new job offers are on a gradual rising trend. in addition, the number of employees, which covers various types of employees including non - regular employees such as temporary workers, appears to be declining at a slower pace. however, firms are still maintaining their stance on reducing personnel expenses, and household income continues to decrease with the ongoing decline in wages. the employment and income situation of households overall remains severe. turning to the economic outlook, a widely shared view of the prospect for overseas economies is that the growth rate, especially that of the u. s. economy, will accelerate in the second half of this year with diminishing uncertainty regarding iraq - related developments. for the time being, however, the recovery in the u. s. and european economies is projected to remain very modest. moreover, there is rising concern that the growth of east asian economies, which has been well - sustained so far, may slow at least temporarily, influenced by severe acute respiratory syndrome ( sars ). in this situation, exports and also industrial production are expected to remain virtually level for the time being. with respect to domestic demand, public investment is projected to follow a declining trend, and private consumption is likely to remain weak for some time due to the severe employment and income situation. business fixed investment is likely to follow a clear uptrend if exports and production increase clearly again, but for the time being, the increase in business investment is expected to remain very modest. overall, assuming that the growth rate of overseas economies accelerates in the second half of this year, the uptrend in exports and production will resume sooner or later, which in turn will initiate the momentum for an economic recovery in japan. however, a self - sustaining recovery in domestic demand is unlikely to gain momentum for some time, since production is expected to be virtually unchanged for the