than 3 per cent from peak to trough and more than 400, 000 jobs were lost. we have now recouped those lost jobs, but not the lost momentum and opportunities the crisis left behind. after living through this, how can we ignore the obvious links between the economy and finance? the short answer is that when times are good, we can make the mistake of becoming complacent. the economy and finance have been meeting for a long time as i said at the outset, the economy and finance have a long and eventful history. when financial markets are functioning well, they play a background role in the overall behaviour of the real economy. at the same time, when the economy is stable, macroeconomic considerations might appear to play a more secondary role in the functioning of financial markets. taken together, this suggests that in stable times it might be tempting to analyze the behaviour of the real economy and financial markets separately, each of them being a black box to the other, not worth opening. this approach is also convenient : economists can build economic models without introducing too many financial details ; financial wizards can price assets without thinking too much about macroeconomic risks ; and business schools can build curricula where economics and finance are taught with little reference to each other. this is all very well in a stable world. but a stable world is not a perfect world. and imperfections can eventually break the stability. it has long been understood that imperfections in the financial market can generate and amplify economic fluctuations, driving the dynamics of a crisis. these imperfections typically stem from transaction costs or asymmetric information. this is economist jargon, but let me give you an example. an entrepreneur who needs to borrow funds typically knows more about the quality of her project than the lender. moreover, the success of the project – and the likelihood of the loan being repaid – will depend on the behaviour of the entrepreneur. this information gap is an imperfection that the financial system needs to address. financial intermediaries – for instance, banks – play an important role in partly bridging this information gap through screening and monitoring of prospective borrowers. another way is for the borrower to put some skin in the game by pledging collateral – for example, real estate – which becomes a key determinant of borrowing capacity. appreciating the role of information and the importance of collateral helps to explain how a financial crisis, such as the great depression, can unfold by

and uncertainty such as over future developments in emerging and commodityexporting economies, particularly the chinese economy. in this situation, the bank judged that there was an increasing risk that an improvement in the business confidence of japanese firms and conversion of the deflationary mindset might be delayed and that the underlying trend in prices might be negatively affected. to preempt the manifestation of this risk and to maintain momentum toward achieving the price stability target of 2 percent, the bank decided to introduce “ qqe with a negative interest rate. ” i have explained the outline of the bank ’ s assessment presented in the january 2016 outlook report and the new monetary policy scheme introduced in january. next, i would like to touch upon several features of economic and price developments. bis central bankers ’ speeches iii. several features of economic and price developments as i mentioned earlier, global stock markets and foreign exchange markets have been in turmoil recently, especially since the turn of the year, and such volatile movements have started to negatively affect financial markets in japan. investors have become increasingly risk averse due to several factors that have been reinforcing each other : ( 1 ) the shift toward monetary tightening in the united states, ( 2 ) the economic slowdown in china as well as the turmoil in chinese stocks and the yuan rate, ( 3 ) a sharp decline in crude oil prices, and ( 4 ) the sluggishness in emerging and commodity - exporting economies. i believe that the recent volatile movements in global financial markets are less likely to induce instability in the global financial system, unlike in the past. nevertheless, attention should be paid to the possibility that, if volatile movements are protracted, this may affect confidence among individuals and firms and ultimately economic activity. a continuation of monetary tightening in the united states would indicate that economic conditions there are deemed to be favorable. if the momentum of economic activity is judged as weak, the rate rise will be postponed. as for china, there is room for adequate fiscal and monetary measures. i do not expect that these developments will intensify negative impacts on emerging and commodity - exporting economies or on japan ’ s economy. in contrast, the substantial decline in crude oil prices has been exerting an extremely large impact on recent developments in the global economy and financial conditions worldwide, regardless of whether such decline was the cause or the consequence of these developments. a. decline in crude oil prices the decline in crude oil prices has had a negative influence on a wide range of corporate activities