have reinforced the tendency of firms to suppress wages, as shown again in chart 2. the combination of these factors led to a prolonged period of low growth as well as deflation or low inflation, which had a major impact on firms'behavior. in their business strategies, firms began to prioritize ensuring their financial soundness and cutting costs. they shifted production overseas and curbed strategic investment domestically. in this situation, as shown in chart 3, the corporate sector became a net saver in a constant manner, with firms'investment remaining below their cash flow. as firms enhanced efficiency by cutting costs, japan's economy over many years managed to achieve a labor productivity growth rate comparable to other advanced economies, albeit not as high as that of the united states. this is the result of the extraordinary efforts firms made during this period. however, it cannot be denied that the suppression of research and development ( r & d ) and strategic investment affected japan's long - term growth potential. the impact of prioritizing cost cutting and constraining positive actions can also be observed in the change in japan's position in the global trade structure - - that is, changes in the composition of japan's current account balance and a deterioration in the terms of trade, as shown in chart 4. looking at the breakdown of the current account balance, the trade balance has been at around zero or marked a deficit in recent years, due partly to the shift of production overseas. the main driver of the current account surplus has shifted to the income balance, which includes investment income from entities such as overseas subsidiaries. the terms of trade shown at the right of chart 4 have been deteriorating. terms of trade are defined as the ratio of export prices to import prices. deterioration in these terms means that income flows out of the country through the trading of higher - priced imports and lower - priced exports. it should be noted that terms of trade are largely unaffected by foreign exchange rate movements, since they affect both exports and imports. what plays a key role is foreign currency - denominated prices. in fact, japan's deteriorating terms of trade since the 1990s are mainly attributable to import price rises stemming from higher commodity prices in u. s. dollar terms. given that japan is a net commodity importer, the impact of higher import prices was unavoidable. nonetheless, it also needs to be noted that the rise in commodity prices was brought about by the expansion of emerging economies. if japanese

are likely to worsen again. without fundamental rebalancing, a full - fledged recovery of world economy may be a remote possibility. but rebalancing within a short period of time is no trivial task. it will require more proactive and concerted policy efforts than are currently being made. the recent expansionary macroeconomic policies undertaken in response to the sluggish economic growth are, as i see it, temporary measures, and not ultimate solutions to rebalancing. they serve to mature conditions for carrying out structural reforms that are essential to remedying the imbalances. in this regard, the following can be suggested as structural solutions for rebalancing. first, the current account surplus economies need to expand their domestic sectors, and thereby establish a virtuous circle between output, employment, and income. the current account deficit countries, on the other hand, need to nurture their manufacturing industries, so as to improve their bases for exporting. in individual countries, the imbalances between their real and financial economies, and between their manufacturing and service sectors, need to be corrected, while they must also work to reduce their debts and the disparities between income classes within their populations. to secure the impetus for sustainable growth, countries will also need to work together and combine their wisdom. the brisbane action plan, a set of comprehensive growth strategies bis central bankers ’ speeches presented by the g20 summit last weekend, is one result of such combined wisdom, arrived at after long discussion among member countries, and will be useful in the future rebalancing in each country. during this two - day conference, we will deal with the topics of rebalancing the economy in five separate presentations, as well as in a panel discussion participated in by former and current policymakers from major countries. i look forward to participants reaping many useful ideas here, and to this conference contributing to rebalancing and to the restoration of sustainable growth. thank you. bis central bankers ’ speeches