to maintain financial system stability. using the metaphor, the economy after the burst of a bubble can be divided into two phases : the phase of “ acute pains ” arising from the malfunctioning interbank money markets and the phase of “ chronic illnesses ” from balance - sheet adjustments after such acute pains recede. it is very important to stave off the acute pains, which are likely to trigger a sharp contraction of economic activity and potentially produce devastating effects on the economy. in may 2010, major central banks reintroduced dollar - fund supplying operations when dollar - funding markets showed signs of tension, again reflecting increased concern over sovereign debts problems in peripheral european countries. such measure was implemented with consideration of the importance of maintaining the stability in interbank funding markets. second, we need to continue with the unprecedented easy monetary policy, given the current economic conditions. in fact, many advanced countries have maintained very accommodative monetary policy. the bank of japan ( boj ) also decided recently to implement a comprehensive monetary easing policy in order to further enhance monetary easing. that included three measures : ( i ) clarification of maintaining virtually zero interest rates ; ( ii ) clarification of the time horizon to maintain the virtually zero interest rate policy ; and ( iii ) establishment of an asset purchase program to purchase various financial assets, such as government securities, commercial paper ( cp ), corporate bonds, exchange - traded funds, and real estate investment trusts and to conduct the fixed - rate funds - supplying operation against the pooled collateral. third, we need to accept the fact that, once a country experienced a bubble, it will take fairly long to rise up from the bottom in the aftermath of the burst of a bubble, and restore the fullfledged recovery path, despite various unprecedented policy efforts. as japan ’ s experience shows, it is the hard fact that the economy will be unable to achieve a strong recovery without resolving “ excesses ” accumulated during a bubble period. the form of “ excesses ” varies from country to country. in japan, they were “ three excesses ” in the business sector : employment, production capacity, and debt ( chart 9 ). in that context, we sometimes hear an argument that “ the delayed monetary policy responses caused the economic stagnation ”. it is true that the boj failed to fully recognize the significant magnitude of adverse effects soon after the burst of the bubble, like other central banks. but it is also true that the boj carried out

of some products closely related to international commodities, such as those of petroleum products. consumer prices are also leveling out. on the other hand, corporate service prices continue to decline. for a while, movements of overall prices are likely to be flat, as import prices are rising and the decline in domestic commodity prices has come to a halt reflecting the progress in inventory adjustment. however, distinct narrowing in the output gap is this report was written based on data and information available when the bank of japan monetary policy meeting was held on august 13, 1999. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on august 13 as the basis of monetary policy decisions. unlikely for the time being even though the economy has stopped deteriorating, and wages continue to decline. thus, downward pressure on prices is expected to remain. in the financial market, the overnight call rate has stayed at nearly zero, and financial institutions have been confident about the availability of overnight funds. interest rates on term instruments slightly increased from the middle of june but then fell back, and have recently been steady. however, those on instruments maturing beyond the year - end are relatively high partly due to market participants ’ concern over the year 2000 problem. the japan premium has continued to be nearly zero. yields on long - term government bonds fell to the level of 1. 6 percent in the middle of july, but have slightly increased to 1. 8 - 1. 9 percent. the yield spread between government bonds and private bonds, especially corporate bonds with relatively low credit ratings, has narrowed further. stock prices fell in late july against the background of the appreciation of the yen and the recent weak tone in u. s. stock prices. the current level is around 17, 000 - 17, 500 yen. the amount outstanding of funds in the call money market has remained generally stable since the middle of june. to date, this has not led to any difficulty in funds settlement, but close attention should be paid to future market developments. with regard to corporate finance, private banks have basically retained their cautious lending attitude. however, constraint that had been caused by severe fund - raising conditions and insufficient capital base has eased considerably. under these circumstances, major banks have gradually become more active than before in extending loans, while carefully evaluating the credit risks involved. however, credit demand for economic activities such as business fixed investment remains weak. in addition, firms ’ moves to increase their on - hand liquidity have