evolve and pursue new strategies, supervisors need to understand those changes and assess firms accordingly. we must constantly evaluate the strategic focus of the firms we supervise and assess whether our approach and perspective are appropriate for the new activities. in a world with a core of diversified firms that are more similar, for example, cross - firm exams and horizontal analysis increase in value and supervisors might require broader skills. moving beyond individual firms, there is the potential for microprudential risks to transform into macroprudential ones. if firms expand, diversify and become more similar, each might become safer individually. the industry as a whole, however, might not be any safer or more resilient. if all firms are effectively the same, they could become “ systemic as a herd ” and susceptible to the same shocks in a way that leaves the aggregate provision of financial services more volatile. 9 the propagation mechanisms for an industry with a set of similar firms with a wider range of activities may be very different from one where firm heterogeneity can offset and smooth the impact of shocks. this suggests that supervisors and regulators should be concerned not just with the firm as an entity, but with the industry as a portfolio of firms where aggregate outcomes reflect both each firm ’ s individual contribution and correlation properties across firms. finally, supervisors are concerned about the efficient provision of financial services and the ability of the financial industry to support the real economy. if firms ’ mix of activities is overly determined by the regulatory environment, firms will have incentives to expand into activities where they do not have a comparative advantage. as a result, the potential gains of specialization would be lost. this could make the provision of financial services less efficient overall. judging the cumulative impact of these changes in a comprehensive way that includes an assessment of costs, benefits, and risks is challenging, but seems an important goal for optimal policy design. 4 / 5 bis central bankers'speeches conclusion a fundamental challenge for effective supervision is that the landscape is constantly evolving and adapting in response to a wide range of regulatory, financial, and technological forces. this type of dynamism is normal and inherently productive for the industry as firms continue to optimize in order to serve customers efficiently and satisfy investors, but it does raise issues that supervisors must consider. as i ’ ve discussed, one recent type of evolution is the trend toward greater similarity of the largest financial firms in the u. s. in response, supervisors and regulators must continue their focus on taking a broad perspective on supervision

the june tankan also showed that private firms ’ fixed investment was starting to pick up as evidenced by reasonably upbeat business fixed investment plans, which were revised upward from the march tankan, particularly in the manufacturing sector. with supply - side constraints easing further and production regaining traction, japan ’ s economy is expected to return to a moderate recovery path from the second half of fiscal 2011, backed by an increase in exports reflecting the improvement in overseas economic conditions and by a rise in demand for rebuilding. as for financial conditions, the overnight call rate has remained at an extremely low level, and the levels of firms ’ funding costs have also continued to be low. firms have continued to see financial institutions ’ lending attitudes as being on an improving trend. issuing conditions bis central bankers ’ speeches for cp have continued to be favorable. in the corporate bond market, although the views of issuers and investors continue to diverge on the terms of issuance of electric power company bonds, issuing conditions have been favorable as a whole, leading to an increased variety of corporate bond issuers. in these circumstances, firms have retained their recovered financial positions on the whole, albeit with the observed weakness at some firms, mainly small ones. on the price front, the year - on - year rate of change in the cpi ( excluding fresh food ) marked 0. 6 percent in april and may. the rate turned positive in april for the first time in two years and four months since december 2008. as for the outlook, the year - on - year rate of change in the cpi is expected to remain slightly positive. however, the bank recognizes that the yearon - year rate of increase in the cpi is likely to be revised downward with the base - year change scheduled for august 2011. based on these assessments, japan ’ s economy is expected to return to a sustainable growth path with price stability in the longer run. let me turn to risks to the outlook i have mentioned. regarding risks to the economic outlook, although concern over supply chains has subsided, the impact of the earthquake disaster on japan ’ s economy, especially through changes in household sentiment, still requires due attention. moreover, uncertainty has increased somewhat with regard to the longer - term outlook for electricity supply constraints beyond this summer. with regard to risks to overseas economies, the effects of balance - sheet adjustments on the u. s. economy and the possible consequences of the sovereign risk problems in europe continue to warrant attention. as for emerging and commodity - exporting economies, although many economies