these two questions are closely interlinked and quite justified. we have to learn from the past in order to shape the future of our financial system. so this morning, i want to speak about two things : • first, i will briefly outline my understanding of the causes behind the events which unfolded on january 30, 2009 and what the clico / cib crisis has taught us ; and • then, i will discuss five major initiatives the central bank has been undertaking to avoid another crisis. these initiatives will not just protect our financial system, but also help shape its future direction. learning from the past – what the clico / cib crisis taught us ladies and gentlemen, at the outset i wish to indicate that the cl financial failure is the subject of three major investigations. first, the central bank commissioned a forensic investigation which resulted in the filing of a civil suit claiming damages against former bis central bankers ’ speeches leading cl financial executives and their related companies. second, the director of public prosecutions is investigating the prospect of laying criminal charges against these former leading executives. third, a commission of enquiry has completed its deliberations and is expected to produce a report into the circumstances behind the failure of cl financial. as you may appreciate, these investigations quite naturally constrain my public disclosures on the causes of the clico / cib crisis. i will therefore, confine my discussion to the public statements made by central bank officials at the commission of enquiry. my reading of those public statements suggests that the following could be interpreted as some of the reasons behind the failure of the cl financial group : • cl financial reflected a highly complex and opaque business model. poor corporate governance and weak risk management practices made it difficult to assess the extent of exposures and potential spillovers. it was difficult to determine who was dancing with whom, and how closely. this opacity magnified the shock to confidence as the clico / cib crisis unfolded ; • the cl financial group became highly over leveraged and heavily interconnected. both clico and cib used aggressively high interest rates to finance equally high risk investments, much of which were in illiquid assets including real estate ; • actual leverage of the cl financial group was even greater than immediately apparent. distorted incentive structures encouraged excessive related - party transactions, which were not specifically prohibited in regulation, but which carried significant contagion risks ; • liquidity risk was higher than recognized. clico and cib took on excessive maturity

the pace of recovery in the global economy. it also has led to discussions about low productivity and continued shortages in demand – a situation referred to as “ secular stagnation. ” bis central bankers ’ speeches the third is the challenge specific to japan regarding the policy target. the bank aims to achieve the price stability target of 2 percent, while at the same time raising and re - anchoring the inflation rate that the general public perceives as representing price stability to the new policy target of 2 percent. among advanced economies, only japan faces this challenge, and the bank should continue to make efforts to provide a thorough explanation about the feasibility. in january 2013, the bank set the price stability target of 2 percent and jointly committed with the government to achieve this goal. prior to this, the bank had judged that the price stability goal was in a positive range of 2 percent or lower and had set a goal at 1 percent for the time being. the bank now aims to achieve a higher target – to be precise, the upper limit of the previous goal – based on the recognition that efforts by a wide range of entities toward strengthening the competitiveness and growth potential of japan ’ s economy will make progress. i will elaborate on this point later, but the fundamentals of japan ’ s economy have been improving steadily and these developments are in line with the bank ’ s recognition. it is very likely that the bank will achieve the price stability target of 2 percent and, by maintaining that target in a stable manner, re - anchor the inflation rate that the general public perceives as representing price stability at around 2 percent. according to the bank ’ s projections for economic activity and prices made in january 2015, the year - on - year rate of increase in the consumer price index is likely to reach around 2 percent in or around fiscal 2015. i personally hold the view that, although the precise timing for reaching 2 percent can be either earlier or later to some extent, the rate will likely rise close to 2 percent as a trend as downward pressure exerted by the decline in crude oil prices eventually will dissipate on a year - on - year basis. iii. path toward achieving the price stability target of 2 percent let me explain once again the path toward achieving the price stability target that the bank has in mind. the key question is whether the inflation rate will trend upward toward 2 percent together with a sustainable economic recovery. let me discuss the sustainability of japan ’ s economic recovery from a few perspectives. first, economic