, and the task of achieving price stability is necessarily assigned to monetary policy. this then explains why the monetary policy of the central bank is so vital and why the central bank is called the guardian of the currency. there is a question of how asset prices, such as land prices and stock prices, may be considered in the management of monetary policy. the bank believes that it is unsuitable to consider asset prices in the same way as it does the prices of ordinary goods and services. for example, land is not produced by everyday economic activity. in addition, land prices are determined in part by the perception of earnings that will be generated from the land, in other words, by the projection of economic activity and prices. asset prices are therefore different in nature from the prices of goods and services that are produced daily through economic activity and consumed. it is also apparent, however, from the bitter experiences of the “ bubble ” economy that major fluctuations in asset prices are related to large swings in the economy. therefore, the bank believes that in order to ensure price stability in the medium to long term, due attention must be paid to asset - price developments. later, i would like to discuss in more detail the meaning of price stability in the medium to long term. b. the significance of price stability let me now consider the significance of price stability. it seems self - evident that inflation and deflation are not desirable. as large fluctuations in prices are usually accompanied by economic overheating or recession, the stabilization of prices will lead to a stable economy. furthermore, price fluctuations lead to an uneven distribution of income and assets, thereby threatening the stability of people ’ s everyday lives. in addition to the above, i would like to stress that the stability of prices in general is the most important precondition for the smooth functioning of the market mechanism. the market mechanism adjusts production and demand according to the signals sent by the changes in relative prices. once inflation or deflation occurs, it becomes extremely difficult to read the signals received from the changes in individual prices, and as a result, the price mechanism ceases to function properly. this is because it becomes impossible to distinguish whether changes in individual prices reflect shifts in relative prices or in prices in general. it is as if there is no reliable yardstick for economic activity. under such circumstances, firms trying to formulate future business plans based on their estimation of profitability of investments, and households making plans for savings and consumption face growing uncertainties, and this imp

the iron - and steel - industry. in light of these facts, it is most likely that production will be further revitalized, strengthening the virtuous circle of the economy led by expanded private demand. however, this remains to be seen. in view of this economic situation, the bank will continue, in the management of current monetary policy, to monitor monetary and economic developments closely, placing emphasis on further strengthening the foundation for an economic recovery. and to repeat my earlier point, it is also important to carry out structural reforms including drastic deregulation. in this respect, i hope that the new administration will continue to exercise strong leadership. iii. new thinking on economic policy management the industrialized countries today attach more importance to structural policies, such as the strengthening of the competitiveness of domestic industries and the improvement of market infrastructure. in addition, these countries are making steady efforts to promote fiscal consolidation, to reform their central bank systems, and more broadly, to review national economic policy management and its framework. this common trend among the industrialized countries is closely related to the recent changes in the global economy. the collapse of the former socialist bloc, for example, demonstrated the superiority of a market economy over a government - controlled economy : that is, the superiority of a decentralized economy over a centrally - planned economy. in addition, the transition to a market economy and the progress of industrialization of these former socialist countries and the developing asian countries have stimulated the industrialized countries to strengthen the competitiveness of their economies. furthermore, past experiences of economic fluctuations, such as inflation and the asset - price “ bubble ”, and the concurrent accumulation of budget deficits have prompted countries to closely re - examine fundamental thinking on economic policy and the underlying economic theories. this year happens to be the 50th year since the death of john maynard keynes. there have recently been renewed discussions on the evaluating of keynes ’ theories and keynesian economics, which in many respects formed the basis of postwar economic policies. the approaches currently adopted by various countries in addressing economic policies have several points in common. the first point is the growing emphasis placed on improving the supply side of the economy. the conventional approach to economic policy emphasizes the control of aggregate demand through monetary and fiscal policies, and this remains dominant when seeking short - term adjustments of the economy. at the same time, however, there is a growing perception that the driving force of long - term economic growth owes much to firms ’ efforts to improve their productivity. it is thus