is vital for monetary policy to adopt a wide - ranging perspective that takes due account of the various factors influencing economic activity and prices. this is something we bear in mind in our efforts to ensure the appropriate conduct of monetary policy. iv. issues facing japan's financial system as the last topic of my speech today, i would like to touch upon the recent volatility in global financial markets and its implications for japan's financial system. as subprime mortgage problems have intensified and become more widespread in financial markets abroad, the impact on japanese financial institutions has been gradually increasing and is greater than originally expected. for instance, the decline in the market value of investment products has resulted in losses at some japanese financial institutions, and some financial institutions have posted losses from revaluation on unsold products arranged as part of their overseas securitization business. however, since japanese financial institutions'exposure to credit markets is relatively small, it seems that so far each financial institution or financial group is able to absorb losses incurred sufficiently within its earnings for the period or its buffer capital. we will keep our eyes on developments in u. s. and european financial markets, but it currently seems unlikely that this particular problem will pose any significant threat to the stability of japan's financial system. based on the assessment i have just made, let me now turn to current issues relating to risk management by market participants. first, market participants, including financial institutions, need to assess the risks pertaining to financial products more precisely. it cannot be denied that the current disruptions in financial markets are due partly to lax risk assessment by market participants caught out by the rapid expansion of markets for securitized products as well as the increased market penetration of complex financial products whose riskiness is difficult to assess. innovative new financial products, in particular, have only a limited amount of accumulated historical data, for example on price fluctuations, and they also have complex risk profiles and relatively low market liquidity. for this reason, market participants should seek to quantify risks as accurately as possible, subject to very strict stress testing, and should then conduct appropriate risk management accordingly. second, market participants should further involve themselves in enhancing market transparency. as seen in recent events, once a significant shock has occurred, the market as a whole tends to suffer anxiety and it can take some time for the proper functioning of financial markets to be restored. furthermore, market reaction seems to become larger where financial products traded incorporate more advanced financial technologies. from the viewpoint

of minimizing market over - reactions and facilitating the prompt recovery of market functioning, initiatives by market participants to further enhance information disclosure are highly desirable. greater market transparency could be achieved, for instance, through the disclosure by financial institutions of the outstanding amounts of their investments and information concerning their profits and losses, as well as the provision by rating agencies of detailed information relevant to credit ratings. i would like to emphasize that we do not view the recent development of financial markets, especially for securitized products, in a negative light. risk diversification using new financial products has broadened the range of participants in financial markets, and has contributed significantly to the growth of the world economy. the problem has been that the techniques to assess and manage the associated risks have not kept up with the pace of product innovation. what we need is to improve those techniques. at the bank of japan, we will continue to closely monitor developments in global financial markets and to assess their implications for the japanese financial system. at the same time, we will study and analyze in greater depth the various risk management issues i have discussed today, and so contribute to the enhancement of risk management by japanese financial institutions. closing remarks amid intensifying global competition, chubu, which has an industrial sector that is highly competitive at the international level, has been pulling the japanese economy forward. i feel confident that the chubu region will make use of the advanced technological expertise it has built up to take advantage of new business opportunities, and to enjoy further breakthroughs. i believe this will in turn lead to the sustained and dynamic growth of japan's economy.