bank of japan ’ s monthly report of recent economic and financial developments1 bank of japan, communication, october 1998. the bank ’ s view2 japan ’ s economic conditions still continue to deteriorate. with respect to final demand, public investment has bottomed out. net exports ( exports minus imports ) are basically increasing mainly due to a decline in imports. business fixed investment, however, has been decreasing significantly partly because of financial constraints, 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 are worsening rapidly. furthermore, the employment and income conditions have deteriorated further as the unemployment rate marked a historical high and the decline in employee income has accelerated. in these circumstances, corporate perceptions of business conditions have worsened substantially and consumer sentiment has become cautious. as the above indicates, there remain continued negative interactions of production, income, and expenditure. with the effects of the comprehensive economic stimulus package and the recent monetary easing, the deterioration of the economy is expected to moderate gradually toward the second half of fiscal 1998. nevertheless, the economy is hardly expected to recover immediately, judged from the strong negative interactions mentioned above and the financial constraints such as financial institutions ’ cautious lending stance due to the nonperforming - loan problem. in these circumstances, there is an immediate need to rebuild the stability of the financial system. in this regard, bills related to financial revitalization have been legislated, and a bill related to bank recapitalization, including policy measures to strengthen banks ’ capital base through injecting public funds, has passed the house of representatives of the diet. it is desirable that functions of and confidence in japan ’ s financial system be restored based on these schemes. furthermore, the government is devising plans for economic recovery, including reduction in personal income taxes and corporate taxes as well as additional public investment. it is important to materialize these measures promptly, in such a way that they not only have sizable direct effects on the economy but also contribute to restore corporate and household confidence. with regard to prices, wholesale prices are on a downtrend reflecting the expanding output gap, and consumer prices have fallen below the previous year ’ s level. with respect to the outlook, given the

of growth. the scheduled total amount of loans – 3 trillion yen – had mostly been disbursed. therefore, the bank created a 500 billion yen new line of credit in june 2011. the new line of credit provides funds at a low interest rate of 0. 1 percent for initially two years and maximum four years to financial institutions that make equity investment and conduct lending against accounts receivable and inventories as collateral. lending that takes accounts receivables and inventories as collateral is called asset - based lending ( abl ) and is utilized widely in the united states. compared with real estate collateral lending, the abl is more difficult in terms of making collateral assessment. the value of assets that have been generated in the process of business cannot be assessed unless a borrowing firm and a financial institution share the thorough understanding of the business contents and developments in the industry. nevertheless, aggressively putting such extra efforts will have a great merit in that it enables firms which do not own enough real estate collateral or personal guarantees to raise financial resources. to take advantage of such merit, the bank expects that corporate managers and financial institutions will jointly make efforts to explore profit opportunities, and the hidden seeds for growth to sprout in japan as a whole. respond flexibly and decisively when risks manifest themselves as explained, the bank has been pursuing powerful monetary easing and providing support to strengthen the foundations for economic growth, while stepping into an extraordinary territory for a central bank. however, as i have repeatedly mentioned today, the bank is aware that uncertainties at home and abroad are significant. upon carefully examining future economic and price developments, including the effects of the recent foreign exchange rate fluctuation, the bank will, if judged necessary, take appropriate policy actions in a flexible and decisive manner. concluding remarks in conclusion, i will refer to nagano prefecture ’ s economy. the development of japan ’ s economy depends on what extent it can incorporate globalization and aging into its advantage. in that regard, nagano ’ s economy has been developing by always paying attention to global markets, from the prewar era of the silk industry to the postwar era of electric and precision machinery. nagano ’ s export share in manufactured goods shipments has been consistently above the national average most of the time since the 1990s. also in terms of responses to aging, nagano prefecture is one step ahead of other regions. nagano is not only one of the leading longevity prefectures in japan and but also known for its high employment rate of