masaaki shirakawa : recent economic and financial developments and the conduct of monetary policy statement by mr masaaki shirakawa, governor of the bank of japan, concerning the bank ’ s “ semiannual report on currency and monetary control ” before the committee on financial affairs, house of councillors, tokyo, 13 april 2010. * * * introduction the bank of japan submitted to the diet its semiannual report on currency and monetary control for the second half of fiscal 2008 and the first half of fiscal 2009 in june and december 2009, respectively. i am pleased to have this opportunity to talk about the recent developments in japan ’ s economy and present an overall review of the bank ’ s conduct of monetary policy. i. developments in japan ’ s economy japan ’ s economy has been picking up mainly due to improvement in overseas economic conditions and to various policy measures, although there is not yet sufficient momentum to support a self - sustaining recovery in domestic private demand. the trend of pick - up is becoming more evident. exports and production have been increasing mainly against a backdrop of robust growth in emerging economies. according to the march tankan ( shortterm economic survey of enterprises in japan ) released at the beginning of april, business sentiment has been improving, with such improvement spreading to the nonmanufacturing industry and small firms, in addition to large manufacturing firms. business fixed investment is leveling out, and private consumption, notably durable goods consumption, is picking up mainly due to policy measures, despite the continued severe employment and income situation. as for the outlook, the bank projects that the pace of improvement of the economy is likely to be moderate for the time being, and it judges that the risk of the economy deteriorating substantially again, the risk of the so - called “ double dip, ” about which market participants had expressed concern, has diminished considerably. thereafter, as improvements in the corporate sector originating from exports are expected to spill over to the household sector, the growth rate of the economy is likely gradually to rise. financial conditions, with some lingering severity, have shown increasing signs of easing. firms ’ borrowing rates from banks have continued to decline due in part to the fact that financial institutions ’ lending stance has become active, in addition to monetary easing by the bank. issuing conditions for cp are more favorable than in the period prior to the lehman shock. issuing conditions for corporate bonds have also been favorable, and even those for low - rated corporate bonds have shown signs of improvement. meanwhile,

businesses said they also relied on home equity lines on their personal residence or on retirement savings. family and friends are another source often mentioned for small business financing, particularly for start - ups. current economic challenges, however, have restricted the availability of these sources. – in annapolis, a small business owner described being denied for a line of credit because her revenues were down in the prior two years. when she looked into refinancing an investment property to tap its equity, lenders said they were not refinancing investment property. as a result, she relied on credit cards and borrowed against her 401 ( k ) savings for working capital. – in los angeles, meeting participants indicated that asian pacific islander ( api ) small businesses rely heavily on personal real estate for their financing, and the significant decline in residential property values has led to a reduction in credit and rising delinquencies for api small business loans. – participants in several meetings expressed the view that minority - owned businesses are generally less likely to have an established banking relationship and thus are less likely to receive bank loans. they often turn to friends and family for financing, particularly in the start - up phase. adjustment of payment terms – small businesses reported adjusting payment terms in order to preserve cash whenever possible – e. g., shortening payment terms for customers and extending payment terms with suppliers. small businesses stated to address this issue and others relating to small business lending, the federal reserve and other federal financial institution regulatory agencies issued a policy statement supporting prudent lending to small business borrowers in february 2010. the guidance states that lenders should understand the long - term viability of the borrower ’ s business, focus on the strength of a borrower ’ s business plan, and analyze a borrower ’ s performance over a reasonable range of future conditions, rather than overly optimistic or pessimistic cases. that their options were limited when their customers or suppliers, who may also be cash - strapped, are larger firms or the government and thus have more leverage. – in milwaukee, a small business owner summarized the phenomenon : “ receivables have gone up and we have passed that on by stretching our payables. some customers pay in 70 days, while others pay in 180. my first recommendation : pass a law that says pay in 30 days or pay interest. ” alternative financial institutions – many community development financial institutions ( cdfis ) and credit union participants noted an increase in small business loan demand over the last