that tools were available to choke off the stock market boom, but those tools would only have been effective if they undermined market participants'confidence in future stability. market participants, however, read the resilience of the economy and stock prices in the face of monetary tightening as an indication of undiscounted market strength. by the late 1990s, it appeared to us that very aggressive action would have been required to counteract the euphoria that developed in the wake of extraordinary gains in productivity growth spawned by technological change. in short, we would have needed to risk precipitating a significant recession, with unknown consequences. the alternative was to wait for the eventual exhaustion of the forces of boom. we concluded that the latter course was by far the safer. whether that judgment continues to hold up through time has yet to be determined. * * * flexibility is most readily achieved by fostering an environment of maximum competition. a key element in creating this environment is flexible labor markets. many working people equate labor market flexibility with job insecurity. despite that perception, flexible labor policies appear to promote job creation. an increased capacity of management to discharge workers without excessive cost, for example, apparently increases companies'willingness to hire without fear of unremediable mistakes. the net effect, to the surprise of most, has been what appears to be a decline in the structural unemployment rate in the united states. protectionism in all its guises, both domestic and international, does not contribute to the welfare of american workers. at best, it is a short - term fix at a cost of lower standards of living for the nation as a whole. we need increased education and training for those displaced by creative destruction, not a stifling of competition. moving forward, i trust that we have learned durable lessons about the benefits of fostering and preserving a flexible economy. that flexibility has been the product of the economic dynamism of our workers and firms that was unleashed, in part, by the efforts of policymakers to remove rigidities and promote competition. although the business cycle has not disappeared, flexibility has made the economy more resilient to shocks and more stable overall during the past couple of decades. to be sure, that stability has created some new challenges for policymakers. but more fundamentally, an environment of greater economic stability has been key to the impressive growth in the standards of living and economic welfare so evident in the united states. 4 / 5 5 / 5

in this situation, due attention should be paid to the fact that there are downside risks to economic activity depending on developments in global financial markets and overseas economies. in addition, if financial conditions in japan, as reflected in lending attitudes of financial institutions and issuing conditions in the cp and corporate bond markets, should increase in severity, pressures acting to depress economic activity from the financial side might become more marked. turning to prices, there is a possibility that the inflation rate will decline further if downside risks to economic activity materialize or commodity prices fall further. ii. conduct of monetary policy as i have explained, the outlook for economic activity and prices is uncertain at present. in this situation, the bank will carefully assess the future outlook for economic activity and prices, closely considering the likelihood of its projections as well as factors posing upside or downside risks, and will implement monetary policy appropriately. for the time being, it is particularly important to pay attention to downside risks to economic activity, such as those that may arise from developments in the u. s. and european financial systems and in global financial markets and the consequent downward pressure. since early autumn, when the turmoil in global financial markets and in the u. s. and european financial systems increased in severity, the bank has continued to make efforts, by employing various measures, to ensure market stability and maintain accommodative financial conditions. specifically, against the background of the worldwide decline in u. s. dollar liquidity, the bank introduced u. s. dollar funds - supplying operations as part of the coordinated measures of central banks in september and thereafter expanded such operations. as for yen funds, the bank has introduced a complementary deposit facility to further facilitate the provision of sufficient liquidity, and has been providing funds for over the year - end with more frequency and in larger amounts than last year. in addition, the bank has been actively purchasing cp and japanese government securities under repurchase agreements, thereby ensuring market stability. furthermore, with a view to facilitating corporate financing, the bank has expanded the range of corporate bonds and loans on deeds it accepts as eligible collateral and has decided to introduce a new operation through which financial institutions can borrow low - interest funds from the bank against corporate debt. under this new operation, there will be no explicit ceiling on the total funds available, although the maximum loans available will not exceed the value of the corporate debt pledged as collateral. the bank will continue to make efforts to ensure market stability by conducting appropriate