relatively well ( chart 25 ). the number of initial public offerings – which showed a large decline in recent years – is gradually on a recovery trend, and such movements are now also being observed outside large metropolitan areas. i am quite encouraged by this development. iv. regulatory and institutional reforms, corporate governance reform, and social values so far, i have talked about the outline of the measures toward strengthening competitiveness and growth potential. in principle, this should happen in an economy as a result of individual firms ’ rational choice. the fact that this is not happening in reality must be the result of economic, institutional, or social factors. accordingly, there is a need to improve the economic environment, i. e., remove those obstructing factors. regulatory and institutional reforms first, there needs to be an improvement, promoted by the government, in the environment that will serve to back firms ’ efforts aimed at bringing about change. more specifically, it is necessary for the government to carry out bold regulatory reform in order for firms to broaden the areas in which they may embark on new challenges, and to make institutional improvements to the labor market so as to allow workers to move more smoothly into businesses and industries with high growth potential. in order to avoid an increase in excessive social friction arising from responses to changes in the economic environment, it is also necessary to provide support for career changes and to enhance the safety net. corporate governance reform second, it is necessary to ensure the appropriate functioning of corporate governance by stockholders and investors. 5 on this issue, germany is a good source of reference. until the for details on the effects of various legal institutions including corporate governance on corporate profits, please see nobuyuki kinoshita, “ the institutional background to characteristics of japanese firms ’ including low profitability ” ( available only in japanese ), imes discussion paper series 2012 - j - 12, institute for monetary and economic studies, bank of japan, 2012. http : / / www. imes. boj. or. jp / research / papers / japanese / 12 - j - 12. pdf bis central bankers ’ speeches beginning of the 2000s, germany was named as a country putting off essential structural reforms, and the country indeed suffered from slow economic growth in the first half of the 2000s. under such circumstances, however, it engaged in various reforms surrounding corporate activity, including institutional reforms that allowed for flexible adjustments to employment as well as enhanced information disclosure to investors. on this point, japan falls behind

germany, especially when it comes to reforming enterprise law in such areas as corporate rehabilitation, as well as mergers and acquisitions. this is said to hinder dynamic corporate restructuring, thereby eroding the international competitiveness of industries across the board. it is also said that such an environment has accentuated the anxiousness over legal liquidation or removed the fear of being taken over, and encouraged to some extent the excessive accumulation of cash and deposits at firms. social values third, society needs to face possible trade - offs between stability and change. japan has been somewhat dominated so far by a perspective that stressed the importance of stability. the method of adding gradual “ improvements ” to one ’ s company ’ s products in accordance with consumer needs in the existing domestic market can be considered a business management style that puts importance on stability. merely making improvements focused on the domestic market amid a population decline, however, carries the risk of the economy falling into a shrinking cycle. corporate profits will suffer even more in the long term if firms continue to keenly compete in terms of prices while maintaining their commitment to securing employment. if i may make a sweeping generalization, firms are facing a judgment call of choosing between “ improvement ”, which represents continuity, and “ innovation ”, which represents discontinuity. if the shock against the economy is temporary, there may be a point to overcoming any difficulties in the immediate future via “ improvements ”, thus prioritizing stability in the long term. confronting long - lasting shocks such as globalization and population aging by means of the same “ improvement ” as before, however, may delay responses to significant changes. reform cannot proceed without public consensus. bringing about innovation requires firms ’ willingness to take on challenges as well as the transfer and reallocation of necessary resources. frictions may well be experienced in the process. while this is not necessarily an issue with one indisputable solution, if environmental change is long - lasting, i find it extremely important for society as a whole to accept such changes and adopt a view that encourages any and all efforts to take on new challenges, in order to successfully carry out reforms toward strengthening growth potential. v. relationship with prices so far, i have talked about the efforts to strengthen the economy ’ s competitiveness and growth potential. next, getting slightly off track, i will touch upon the relationship between economic growth and prices. the year - on - year rate of change in the consumer price index ( cpi ) is currently around 0 percent, but is