issue facing japan is one of declining growth expectations, which in turn considerably contributes to the current fall in prices, the bank concluded that it should use the central banking functions it is endowed with to help strengthening the growth foundations of japan ’ s economy from the financial side. this is consistent with the mission of monetary policy in the bank of japan act, which stipulates that “ currency and monetary control by the bank of japan shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy. ” in this regard, we at the bank are paying attention to the following two points. first, the aim of this measure is to provide temporary support from the funding side for initiatives taken by financial institutions at their own accord and does not imply that the bank will be involved in the allocation of funds to individual industries or firms. and second, the measure should not inhibit the future conduct of monetary policy. the measure will be conducted while maintaining the soundness of the bank of japan ’ s balance sheet and without constraining interest rate policy by, for example, setting a limit on the total loan amount. concluding remarks time is running out, so i will try to wrap up my speech. the following three conclusions can be drawn. first, at present, japan ’ s economy is making steady progress toward returning to a sustainable growth path with price stability. however, we need to continue to be vigilant for both upside and downside risks such as higher growth in emerging and commodity - exporting countries and international financial developments. second, the most important challenge for japan ’ s economy is the downward trend in the potential growth rate, and we need to squarely address this problem. the so - called deflation problem is, in my view, also a manifestation of the fundamental problem japan is facing, namely, the decline in growth expectations. and third, in order to put the brakes on the decline in the potential growth rate and productivity growth, efforts at innovation are more important than ever. to this end, in addition to the efforts by individual firms, it is important to achieve an optimal allocation of resources and raise the metabolism of the economy. the decline in the growth rate is a phenomenon that has gradually progressed over a long period of time. therefore, raising the potential growth rate will also be a long - drawn - out process. if there was a magic wand that could resolve the problem immediately, somebody would already have used it. the economy is a complex network. for that reason

the efforts necessary to meet those challenges. to state the conclusion in advance, a key issue in meeting the challenges is the role of innovation in economic activity. therefore, in addition to current economic and price developments, what i would like to talk about today are the fundamental challenges facing japan ’ s economy and the necessary responses by focusing on the role of innovation. i. japan ’ s economy baseline scenario for economic activity and prices let me first explain developments in japan ’ s economic activity and prices. japan ’ s economy is starting to recover moderately, induced by improvement in overseas economic conditions. the main reason is the strong growth in emerging and commodityexporting economies. these countries have been growing faster than forecasted by see the april 2010 outlook for economic activity and prices released by the bank of japan on may 1, 2010. international and private organizations, and forecasts continued to be revised upward. against this background, japan ’ s economy has also been growing faster than envisaged at the beginning of this year as a result of, for example, continuing high growth in exports. in addition, recently, first signs pointing toward a self - sustaining recovery in domestic private demand have gradually begun to appear. that is, with exports and production continuing to increase, business fixed investment is showing signs of picking up. as for private consumption, in addition to the pick up in sales of electrical appliances and automobiles, which were boosted by policy measures, the declining trend of sales at department stores has been coming to a halt since the turn of the year. moreover, the severity in the employment situation has eased somewhat, with non - scheduled hours worked increasing and the ratio of job offers to applicants on an uptrend. nevertheless, the employment and income situation remains severe on the whole, which warrants continued attention. the baseline scenario for the outlook is that japan ’ s economy is likely to follow a recovery trend. the eco - point system and subsidies for energy - efficient cars are expected to be wound up in the course of fiscal 2010 and their demand - boosting effects will dissipate gradually. on the other hand, exports and production are likely to continue increasing on the back of strong growth in emerging and commodity - exporting economies, and business fixed investment is also likely to pick up. in addition, as business activity increases, the employment and income situation is likely to gradually improve, and growth in private consumption and housing investment is expected to accelerate. based on these projections, japan ’ s economy, following a contraction