various kinds of moral hazard, both socially and economically. it is true that the zero interest rate policy, which provides the market with ample funds to guide the overnight rate to virtually zero, could create a situation where banks and firms have become less sensitive to borrowing costs and liquidity risks. indeed, it is through this effect that the policy supports economic recovery and promotes structural reform. at the same time, it cannot be denied that the policy may tend to delay structural reform by making economic agents with a large amount of debt less conscious of borrowing costs and liquidity risks. of course, i do not think it appropriate to lift the zero interest rate policy to prevent moral hazard. let me make it clear that the termination of the zero interest rate policy depends on whether we can be confident that the economic recovery is being primarily led by private demand. is the termination of the zero interest rate policy consistent with fiscal policy? the fifth point is the relation between the termination of the zero interest rate policy and the government ’ s fiscal policy stance. some argue that a stimulus from the monetary policy side is essential and it is premature to terminate the zero interest rate policy because no further stimulus from fiscal policy can be expected considering the significant deterioration in the government ’ s fiscal position. others argue that, when the government formulates a supplementary budget to stimulate the economy, fiscal policy aimed at achieving an economic recovery led by private demand and the bank ’ s monetary policy should be harmonized. of course, the bank of japan never ignores the government ’ s fiscal policy stance when conducting monetary policy. as i have reiterated many times, we will not terminate the zero interest rate policy unless we feel confident that the economic recovery is led by private demand. chart 6 shows the contribution of private demand and government expenditure to the year - on - year growth of real gdp, which indicates that the driving force behind the economy has steadily shifted from government expenditure to private demand, and the gdp growth rate has been gradually rising. the bank of japan will terminate the zero interest rate policy only when it feels confident that an economic recovery led by private demand is in prospect, and i believe this is consistent with what the government is aiming at. impairing the proper functioning of the market mechanism the sixth point relates to the functioning of the market mechanism. there is a view that the proper functioning of the financial market has been impaired by the zero interest rate policy and that it should be restored by terminating the policy. in fact, we too were worried about the impairment

1999. for example, the year - on - year growth rate of real gdp increased from minus 0. 4 % in the first quarter of 1999 to plus 0. 7 % in the same quarter of 2000, and industrial production growth rose from minus 3. 8 % in the first quarter of 1999 to plus 7 % in the second quarter of 2000. business sentiment in terms of the tankan diffusion index for all industries and sizes of firms has substantially improved from minus 44 in march 1999 to minus 18 in june 2000. and, the consensus forecast of the private sector for real gdp growth for this fiscal year has been revised upward from 0. 8 % at the beginning of this year to 1. 5 % recently. moreover, june ’ s tankan survey showed that corporate profits were expected to mark a double - digit increase for two consecutive years in fiscal 1999 and 2000. while inflation in terms of wpi is slightly above the previous year ’ s level, that in terms of cpi is slightly below. there are a number of factors responsible for the moderate economic recovery. first and foremost is the implementation of several important policy measures to restore financial system stability. public funds were injected into major banks to strengthen their capital base and a legal framework was established to speed up the bankruptcy process. under such circumstances, financial institutions themselves are striving to reconstruct their management. the second factor is support from macroeconomic policy, which includes both fiscal policy of the government and the zero interest rate policy of the bank of japan. the third factor is the upturn of overseas economies. in addition to the expansion in the united states and europe, asian economies have been recovering rapidly after overcoming currency and financial crises. the fourth factor is the boom in the high - tech and it - related business areas. whether trends like the it revolution witnessed in the united states will spread to japan depends on how firms and individuals as users take advantage of information technology. japanese producers related to high - tech business have swiftly responded to the rapid increase in demand both at home and abroad, and an increasing number of them have been expanding investment reflecting the tightening supply and demand conditions. it is natural that economic recovery leads to the question of whether the zero interest rate policy should be terminated. as i mentioned, the bank of japan announced in april 1999 that it would continue the zero interest rate policy until deflationary concern had been dispelled. discussions at subsequent monetary policy meetings have disclosed that such deflationary concern would be dispelled if we