s. dollar financial market enabled major japanese banks to adjust the liability side of their balance sheets and focus on increasing client - related deposits. see ichiue, h., t. kimura, t. nakamura, and h. hasebe, " the supply and demand of safe assets and the scarcity premium for government bonds, " bank of japan review, 12 - j - 1, january 2012 ( in japanese only ). see bertaut, c., a. tabova, and v. wong, " the replacement of safe assets : evidence from the u. s. bond portfolio, " board of governors of the federal reserve system, international finance discussion papers, no. 1123, october 2014. the following paper reviews the shift of funds from prime mmfs to government mmfs from the perspective of the supply and demand for safe assets : u. s. securities and exchange commission, " demand and supply of safe assets in the economy, " memo, march 2014. safe assets and financial vulnerability at this point, you might wonder why i am deploying as arcane a concept as safe assets in order to explain the changes in the debt composition of japanese banks. i have done so because the supply and demand of safe assets is an important reference point for monitoring and assessing the stability and potential vulnerabilities of the financial system. let us look back at the mid - 2000s. at that time, as the yield spread suggests, the demand - supply balance of u. s. dollar safe assets tightened. in response, u. s. and european investors searching for yields bought large amounts of highly rated asset - backed securities issued by private financial intermediaries with the perception that these financial instruments were safe but gave yields that were only a little better than u. s. treasuries. in turn, the issue of asset - backed securities, in particular mortgage - backed securities, rose to meet increased demand from investors. we know that not everybody lived happily thereafter : when problems surfaced in the u. s. subprime mortgage sector followed by the global financial crisis, the asset - backed securities lost their status as safe assets. 9 furthermore, the increasingly noticeable outflow of wholesale deposits from european banks, which aggressively invested in securitized instruments, could be explained at least in part by doubts over the appropriateness of regarding certain bank deposits as safe assets. the same mechanism seems to have been at work when u. s. mmfs reduced their exposure to

innovation ( innovation no sahou, 2007, available only in japanese ), argue that manufacturing today should not be a mere monozukuri that can be measured in terms of quantity, but kotozukuri, or event making, that is, the creation of products that tell a certain story with which purchasers can identify and in which they find value. bis central bankers ’ speeches foundations. for example, because japan ’ s domestic market is relatively large, firms have been able to make some profit, even if their business focuses only on the domestic market. with regard to the fiscal problem, long - term interest rates have not been rising, the yen has not depreciated, and there has been no capital flight. in fact, even though the recession following the failure of lehman brothers was more severe in japan than in the united states and europe, in the foreign exchange markets, demand for the yen has actually increased, as it is viewed as a safe - haven currency. this is attributable to the fact that japan has been running a large current account surplus and is the biggest creditor nation in the world, so that japan is perceived as among the most robust countries in the world in terms of foreign currency funding. be that as it may, given that the decline in the growth rate is a problem that has plagued japan for a long period, a tremendous amount of human energy is needed to reverse this trend. what concerns me in this regard is that japanese society is losing a healthy sense of optimism. just as excessive optimism can generate an asset bubble, excessive pessimism can depress the economy. what is necessary is a strong will for reform and overcoming excessive pessimism. we should keep in mind that japan ’ s economy and society still have many strengths. the first strength is that japan is in asia, which is the very center of global growth. for example, looking at trade developments with china, which is now japan ’ s largest trading partner, japan ’ s exports to china have grown 4. 7 - fold since 2000, while imports from china have grown 2. 7 - fold. moreover, japan ’ s direct investment position in china has expanded by a factor of more than 5 ( chart 14 ). meanwhile, the number of visitors to japan from asian countries has doubled in the past 10 years, to about 7 million, accounting for nearly 80 percent of all visitors. in the future, visitors from asia are likely to increase further as their living standards