. the amount outstanding of lending by private banks, which had long been on a downward trend, finally turned upward on a year - on - year basis in august 2005 after an adjustment for securitization of loans and loan write - offs. since then, the pace of increase has been gradually accelerating. in the previous two recovery phases, weakness in the financial system hindered the economy from moving onto a sustainable growth path. at present, however, the financial system has recovered to a level of soundness sufficient to firmly support the achievement of sustained economic growth. b. spread of improvement in the corporate sector to the household sector in order to realize a sustainable economic recovery, it is important for a virtuous cycle to operate in the economy, wherein the improvement in income of the corporate sector spreads to the household sector, and this in turn feeds back to the corporate sector. unfortunately, in past recovery phases, such a virtuous cycle did not fully operate, as both the corporate sector and the financial system were subject to structural adjustment pressure. in contrast, in the current recovery phase, apparent improvement in the employment and income situation has been observed since the beginning of 2005, and a longer and more sustainable recovery is expected in the household sector. firms have been increasing their numbers of employees, as the adjustment in excessive holdings of labor has progressed. initially, they relied mainly on part - time workers in order to restrain labor costs, but firms have begun to gradually increase their numbers of regular employees, as the labor market has tightened. wages per worker have also been rising, reflecting such conditions in the labor market. specifically, regular payments have recently begun to increase in addition to continuing growth in overtime payments and bonus payments. this improvement in the employment and income situation, coupled with a rise in stock prices and an increase in dividend income, has contributed to income growth in the household sector. with such income conditions, private consumption has been solid. it is expected to remain so, supported by the increase in household income. this development is expected to accelerate the virtuous cycle further as the firmness in private consumption feeds back to the corporate sector. as seen from what i have described, japan's economy continues its solid recovery, but this recovery is often said to not apply evenly across small firms and regional economies. in fact, the degree of recovery still varies according to size of firm and region. the economic recovery has indeed been spreading steadily, with both domestic and external demand continuing to increase. the

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