yutaka yamaguchi : the current state of the japanese economy remarks by mr yutaka yamaguchi, deputy governor of the bank of japan, at the jcif international finance seminar, bank of japan, 17 october 2001. * * * it is my great honor to be here at this jcif seminar. taking this opportunity, i would like to explain the state of japan's economy and the nature of confronting problems. i would also like to share my thoughts on how to address the current difficult situation and, in particular, how the bank of japan could contribute in such a process. 1. global economic developments i would like to start with the state of the global economy, in particular that of the united states, which forms the basis of my assessment of japan's economy. currently, discussion about the prospect for the us economy focuses on two issues. the first is the duration of the ongoing economic adjustment process, which started in the it - related areas, as well as the pace of the subsequent recovery. the second is the economic impact of the tragic terrorist attacks in september. the impact of the terrorist attacks in the us regarding the impact of the terrorist attacks, given great multi - faceted uncertainties, it is premature to make informed judgement even if we narrowly focus on the economic areas. it is however safe to say that we have succeeded in dealing with the most immediate challenge after the attacks, which was to avoid market disruption and to maintain the well - functioning of financial markets with respect to liquidity and settlements. soon after the attacks, central banks including the bank of japan, finance ministries, and financial regulatory bodies in the world made a swift move while maintaining a close contact among each other. in the area of central banking, central banks in major countries swiftly provided significant amount of liquidity to money markets and declared their determination to secure the well - functioning of financial markets and settlement systems. i think that these central bank actions exactly followed a textbook of crisis management. at the same time, participants of financial markets also made their best efforts to preserve the functioning of markets and to execute transactions smoothly. as such, thanks to the coordinated efforts by the financial authorities, both at home and abroad, and market participants, we successfully avoided disruption in financial markets, which could have extended subsequent negative effects to the economy as a whole. currently, our focus has shifted to how the attacks and the subsequent developments will affect the global economy especially that of the united states. on this point, as stated by

however, the information we have been able to piece together, suggest, that the current economic situation is also taking its toll on credit unions as more members face lay - offs and find it more difficult to pay their loans on time. in fact, sample data for credit unions ( and i should clarify that it is a relatively small sample ) suggest that delinquency ratios went up significantly in 2010. what ’ s more, it appears that many credit unions have not been vigorously addressing delinquency, for example, through adequate provisions or by writing off bad debts. i am also advised that some credit unions ( and not only the small credit unions ) may still not have recognized the importance of “ provisions ” or know how to provision. in some cases, it is not clear whether the boards of the credit unions are fully aware of the extent of the problem and thus, in fact, what may be happening is that dividend payouts are coming out of reserves. if that is so, this is certainly not good financial management. the other “ contextual ” development that i would like to refer to has to do with the credit unions ’ exposure in the unfolding clico situation. the information which is in the public domain indicates that 65 credit unions had investments amounting to close to $ 700 million in clico. that, in itself, is not my issue. what is the issue? it is that for some credit unions, bis central bankers ’ speeches the impairment of these investments would threaten their very viability. this suggests that, the management of these credit unions may not have properly assessed credit and investment risks and, through insufficient portfolio diversification, almost compromised the viability of their organizations. fortunately, it appears that satisfactory arrangements have been made to contain any systemic damage to the credit union sector. these two situations point to chronic challenges being faced by the credit union sector. you add to these the medium term outlook, in which economic recovery is expected to depend heavily on small business development, and you mix in the enhanced requirements of the new regulatory framework that is being proposed, and the prescription is for more and more diversified capacity enhancement, at both the individual and organizational level. permit me to expand on this theme. as you know better than i, what makes the credit union movement different from the banking sector is your founding principle – not for profit, not for charity but for service. the philosophy of “ people helping people ” is the cornerstone of your movement. this philosophy imposes on each