earlier, the financial system in japan has been regaining stability, and the blanket guarantee of deposits will be fully lifted on april 1, 2005. financial institutions will be expected to amplify their efforts to develop innovative services tailored to customer needs, thus supporting economic activity. the bank ’ s basic stance regarding financial system policy must shift its focus in response to this changing environment : from crisis management to supporting private - sector initiatives toward providing more efficient and advanced financial services via fair competition, while maintaining overall system stability. in order to contribute to enhancing the functioning and robustness of the financial system, the bank will actively encourage financial institutions ’ efforts to improve their business activities, and devise various ways to enhance its own business. conclusion although japan ’ s economy is at a pause, it is expected to continue recovering with the further expansion of overseas economies and progress in adjustment in it - related goods. to ensure that this recovery will become sustainable, the bank considers it essential that a wide range of economic entities continue to make efforts to revitalize the economy. the bank is determined to firmly support japan ’ s economy from the financial side by maintaining monetary easing with the commitment based on the cpi, in the current situation where the cpi continues to fall slightly on a year - on - year basis. it has become increasingly important for the bank to pursue more advanced services in a wide range of areas as well as ensure well - disciplined management to properly carry out the duties entrusted to it as the nation ’ s central bank. in light of this, the bank has for the first time formulated a medium - term strategic framework ( mtsf ) for fiscal 2005 - 2009, which sets out the bank ’ s management policy for the next five years. the bank is committed to continuing its efforts, through the steady implementation of this mtsf, to retain public confidence and fulfill its mission of contributing to the sound development of the economy.

toshihiko fukui : a review of the bank of japan ’ s conduct of monetary policy statement by mr toshihiko fukui, 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, 31 march 2005. * * * introduction the bank of japan submitted its semiannual report on currency and monetary control for the first half of fiscal 2004 to the diet in december 2004. i am pleased to have this opportunity to present an overall review of the bank ’ s conduct of monetary policy. i. developments in japan ’ s economy japan ’ s economy is still at a pause due to such factors as the ongoing adjustment in the production and inventory of it - related goods. the underlying mechanism for economic recovery, however, continues to operate steadily and production, which was somewhat weak some time ago, has been more or less flat recently. the economy is therefore expected to emerge from this pause before long and to continue recovering and move to a sustainable growth path. in more detail, overseas economies, particularly those of the united states and china, are expected to continue to be on an expanding trend. adjustment in it - related goods is likely to be completed before long, partly because manufacturers started adjustments at an early stage while demand was increasing. in light of this, exports and production are expected to increase. corporate profits and business fixed investment are expected to remain on an increasing trend, as structural adjustment pressure stemming from firms ’ excess capacity and debt has been easing. in addition, household income has clearly stopped declining while the employment situation continues to be on an improving trend. private consumption, therefore, is expected to show signs of a gradual increase. attention should, however, continue to be paid to developments in it - related demand and crude oil prices, which have been at high levels recently, and their impact on the domestic as well as overseas economies. on the price front, domestic corporate goods prices had been rising since the beginning of 2004, but they have been somewhat weak recently. as for the outlook, they are likely to become relatively strong again, due to the rise in the prices of crude oil and other commodities at home and abroad. consumer prices ( excluding fresh food, on a nationwide basis ) continue to fall slightly on a year - on - year basis in a situation where they have been less responsive to the economic recovery, reflecting the increase in productivity and the restraint on labor costs by