toshihiko fukui : prospects for the future of japan ’ s economy speech by mr toshihiko fukui, governor of the bank of japan, at the kisaragi - kai, tokyo, 23 july 2003. * * * when i was appointed governor of the bank of japan four months ago, i made a pledge that i would do my best to contribute to reviving the japanese economy. as we all know, japan ’ s economy is currently beset with a number of formidable problems. by resolving each of these problems steadily and patiently, i believe, prospects for the future of japan ’ s economy will be improved. with such a vision in mind, today, i would like to talk about these problems and the steps the bank has been taking to address them. 1. current situation and challenges facing japan ’ s economy current condition let me begin by briefly talking about the current condition of japan ’ s economy. economic activity, as a whole, remains flat. on the bright side, corporate profits continue to improve, and business fixed investment is on a gradual upturn. indeed, according to the bank ’ s tankan survey released in early july, the ratio of profits to sales is expected to hit a record high in fiscal 2003 since the bursting of the bubble, surpassing the past highs of 1996 and 2000. and, the business fixed investment plan for fiscal 2003 is the largest since fiscal 2000. but, on a more subdued note, personal consumption remains lackluster. high corporate profitability despite anemic sales implies that the effect of corporate restructuring in reducing labor and other costs has been quite substantial. this, in turn, means that the household sector has been faced with harsh labor and income conditions, which have adversely affected consumption. meanwhile, japan ’ s exports have not shown any clear movement either to rise or to decline. thus, as i described at the outset, economic activity overall remains flat. but recently, uncertainties surrounding japan ’ s economy have been gradually abating. the uncertainty surrounding overseas economies, an important factor for exports, has been declining in the wake of the end of the war in iraq and the containment of severe acute respiratory syndrome ( sars ). it is the prevailing view that despite lingering uncertainties, the growth of overseas economies will pick up in the second half of this year. under such circumstances, we expect that a cyclical upswing in japan ’ s economy will begin to materialize in tandem with the gradual improvement in exports and

pursued a free - floating foreign exchange regime until as recently as november 2011. the currency appreciation was getting quite alarming at the time and required urgent policy responses on our part. the orr allowed us to address not only the growing appreciation of the rupee but to build up our reserves which crossed the rs100 - billion threshold in may 2013. we are today well on our way to achieve the target of six months ’ import cover. the orr resulted, however, in excess rupee liquidity in the domestic money market and the bank had to conduct open market operations to mop up the surplus. we had to complement the issue of government securities with our own paper which reached a record level of almost rs19 billion. this came with a cost and weighed heavily on the bank ’ s balance sheet. the continuation of open market operations at the same level as in recent months will rapidly become unsustainable for us. a few years ago, i had flagged this issue. today, i am renewing my call to the authorities to share the burden as it is certainly not in the interest of the nation to have a central bank with weak finances. bis central bankers ’ speeches ponzi schemes at the beginning of 2013, we were hit by a spate of financial scams. scammers, using the loopholes in the regulatory framework, lured the public into investing in schemes that promised extravagant returns ‒ which in fact turned out to be ponzi schemes. this was a wake - up call for regulatory and other authorities to review their operations as they relate to detecting and combating financial crime. when the ponzi schemes were uncovered, the bank stepped in to manage the crisis and reassure victims by setting up a help desk to attend to the grievances of the public. the number of known victims of the six companies involved in the financial scams, who lodged complaints at the bank reached 2, 290 and the total defrauded amount stood at rs835 million by 28 june 2013. the figure is rapidly nearing the rs1 billion mark. we undertook a series of actions to deal with the problem ; most notably we sought the assistance of the reserve bank of india ( rbi ), which has first - hand knowledge of the matter. the rbi team ’ s recommendations range from the reinforcement of know your customer procedures and due diligence in banks, the setting up of dedicated cells to gather market intelligence, to enhanced coordination among regulators. these recommendations are in line with the restructuring and