the more important. as japan seeks to rebuild its economy, efforts to raise the potential growth rate have become even more important. these are certainly not easy challenges, but we have to take them on with great determination. v. the bank of japan ’ s response finally, let me briefly touch on the bank of japan ’ s response after the earthquake struck. as was the case in the financial markets immediately after the failure of lehman brothers, when people ’ s lives and safety are at risk, they sometimes tend to become excessively risk averse, which makes things worse. incidentally, while foreign nationals residing in tokyo increasingly left japan for fear of radiation risk, it has tended to be overlooked that the radiation levels in tokyo are roughly the same as in other major cities around the world, such as paris and berlin, or they were exposed to more radiation on the airplane than they would have been exposed to in tokyo. in the money markets, financial institutions ’ precautionary demand for liquidity surged. rumors have spread among the foreign financial community that the tokyo financial markets would close due to fears of radiation risk. the bank of japan has been asked whether there was any truth to the rumors that the bank of japan was planning to retreat to a backup site in the western part of japan. of course, these rumors were and are groundless. as i said, the financial infrastructures are fully functional and there is no reason for us to relocate from tokyo. bis central bankers ’ speeches in such times, the first priority is ensuring calm among market participants, and in this regard the bank of japan has provided ample liquidity on an unprecedented scale day after day. the very next business day after the earthquake, we decided to significantly increase the amount of its asset purchases, mainly of risk assets, with a view to preventing any deterioration in business sentiment or excessive increase in risk aversion from adversely affecting economic activity. as a result of these measures, financial markets, which became somewhat jittery in the period immediately after the earthquake occurred, have regained stability. needless to say, the bank of japan ’ s mission is to ensure price and financial system stability, thereby contributing to the sustainable growth of japan ’ s economy. we will continue to take appropriate measures as the central bank in order to achieve this mission. vi. concluding remarks as i mentioned earlier, nothing is more heartening in a crisis than the encouragement and support of friends overseas. i would like to conclude by thanking you once again for

bank of japan ’ s september report of recent economic and financial developments bank of japan communication, 11 / 9 / 98. the bank ’ s view japan ’ s economic conditions continue to deteriorate. with respect to final demand, public investment seems to have bottomed out. net exports ( exports minus imports ) are increasing mainly due to a decline in imports. however, business fixed investment has been decreasing significantly, and housing investment has declined further. private consumption has not yet shown a recovery despite the special income tax reduction. against this background of weak final demand, production has been reduced substantially. as a result, some industries have shown improvements in inventory adjustments, but the level of inventories is still high as a whole. with the decline in expenditure and production, corporate profits continue to decrease, and the decline of employee income is accelerating somewhat. in addition, the ratio of job offers to applications records a historically low level, and the unemployment rate remains at a high level. as a whole, the employment and income conditions have deteriorated further. as the above indicates, there are continued negative interactions of production, income, and expenditure. given the current considerably low level of economic activities, the economy is unlikely to transit immediately to a self - sustained recovery led by private demand, although a further deterioration in the economy is expected to cease gradually from the effects of the comprehensive economic stimulus package. additionally, attention should be paid to possible negative effects on the real economy from financial developments including the recent fall in stock prices. in these circumstances, the cabinet approved a guideline on budget requests by ministries for fiscal 1999. this guideline intends to stimulate the economy by allocating ¥4 trillion to the special budgetary provision on the condition that the fiscal structural reform act is suspended. in addition, the bills to rebuild the stability of the financial system are being deliberated at the diet, and the reduction exceeding ¥6 trillion in personal income taxes and corporate taxes is expected to be discussed in detail. the materialization of these policies along with their effects on corporate and household sentiment should be carefully monitored. with regard to prices, wholesale prices are on a downtrend, and consumer prices are lowering below the previous year ’ s level. with respect to the outlook, the downward pressure from domestic factors is unlikely to weaken considerably reflecting the already large output gap, despite the expected effects of the comprehensive economic stimulus package. hence, prices are likely to be weak for some time. in the financial markets, stock prices dropped considerably in late august