outlook, although public investment is expected to increase, distinct narrowing in the output gap is hardly expected toward the first half of 1999, as private demand is likely to remain sluggish. furthermore, the decline in wages and the appreciation of the yen since autumn 1998 are likely to continue exerting downward pressure on prices. hence, prices are expected to remain on a downtrend. this report was written based on data and information available when the bank of japan monetary policy meeting was held on february 12, 1999. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on february 12, as the basis of monetary policy decisions. in the financial markets, the japan premium and euro - yen interest rates ( both on three - month contracts ) remain stable despite the approach of the fiscal year - end. this reflects the abatement of the market ’ s anxiety about liquidity and credit risks of japanese banks against the background of the bank of japan ’ s maintenance of a decisive stance on easy monetary policy as well as the formulation of the framework to restore the stability of japan ’ s financial system. yields on japanese government bonds have risen again reflecting the market ’ s concern over the prospective expansion of fiscal deficits. in the foreign exchange market, the trend has been toward a higher yen. stock prices continue to be weak. considering that these developments can be a hindrance to an economic recovery, their ensuing developments require close attention. with regard to corporate finance, credit demand for economic activities remains weak, as a result of the significant decrease in business fixed investment. firms ’ moves to increase their on - hand liquidity in the face of difficult fund - raising conditions are gradually settling down. although private banks have basically retained their cautious lending stance, they continue to actively utilize the credit guarantee system. as a result, the previously tightened credit conditions are easing somewhat. nevertheless, private banks and capital market participants are still cautious of corporate credit risk, and thus firms with relatively low credit ratings remain under severe fund - raising conditions. the situation continues to warrant careful monitoring, particularly with regard to how corporate finance develops toward the end of the fiscal year. * * *

task of ensuring monetary stability. after all, stable money benefits everyone. this is something the founders of monetary union also realised. indeed, the eurosystem ’ s independence and the fiscal policy rules that are enshrined in the treaties of the european union are designed to allow the eurosystem to concentrate on safeguarding price stability. it is clear, therefore, that the eurosystem ’ s independence is an important pillar for stable money. yet independence and commitment to stability aren ’ t worth very much if this principle is not shared by the population as well. otmar issing, who was a member of the directorate of the bundesbank and went on to become the ecb ’ s chief economist, once said that every society eventually gets the rate of inflation that it deserves – and that it ultimately wanted. demographic change, too, can play a role in this context. it seems reasonable to suppose that an ageing population would attach greater importance to monetary stability, as they would not want to see the savings accumulated during their working life and their current pension benefits eaten up by inflation. the findings of a bundesbank study indicate – at least for germany and the euro area – that older investors hold a greater share of assets that would be devalued through inflation. thus, if an ageing society really does develop a stronger aversion to inflation, a stabilityoriented monetary policy can look forward to growing support. monetary policy - makers will then be better able to stick to a course of monetary stability. ultimately, then, we are seeing two opposite effects – political pressure driven by rising debt and a growing aversion to inflation demonstrated by the ageing societies of the euro area. conclusion ladies and gentlemen, mark twain once said that it ’ s a terrible death to be talked to death. so let me leave you with the image of the rowing boat i mentioned earlier. because demographic change means that there will be fewer and fewer people to do the rowing, it is imperative that the economic policy direction we are rowing in is the right one. measures that promote growth, productivity and technological progress and measures that contribute to the consolidation of public finances are the right course to take. thank you for your attention. i now look forward to answering your questions. bis central bankers ’ speeches