of japan ’ s payment and settlement systems : “ the objective of the bank of japan,..., is to issue banknotes and to carry out currency and monetary control. in addition..., the bank ’ s objective is to ensure the smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of an orderly financial system. ” to fulfill this mission, the bank of japan performs a variety of functions. first, it provides the medium of settlement in the form of bank of japan notes and current account services, and constantly strives to improve efficiency and safety. its function to examine the authenticity of banknotes and prevent counterfeiting while securing the efficient circulation of banknotes lays the foundation for public confidence in banknotes. furthermore, the bank has been making various efforts to improve the efficiency and safety of the settlement system for funds and government securities by providing online services for current accounts through the boj - net system. in addition to such efforts, the bank of japan conducts on - site examinations and off - site monitoring of financial institutions that hold current accounts with it, and obtains information regarding their financial strength and risk management. if a financial institution faces a liquidity shortage that might seriously impair the smooth operation of payment systems, the bank of japan will provide liquidity as the lender of last resort, thereby preventing systemic risk from emerging. with this preamble, let me turn to the role of the bank of japan in securing efficient and safe payment systems, thereby maintaining financial system stability under innovation in information and communications technology. payment systems in japan consist of those operated by the bank of japan and private sector ones. in view of the fact that payment systems are a fundamental infrastructure for economic activity, it is always important to maintain the safety of payment systems as a whole regardless of whether technological innovation creates a new provider, a new channel or a new means of payment. in this regard, all related parties, that is, financial institutions, the steering bodies of private payment systems and the central bank, need to be in close contact and make efforts to discharge their respective responsibilities. the bank of japan provides a settlement service called boj - net. boj - net is the core settlement system for yen funds and government securities and is participated in by major financial institutions and private payment systems. we continue to make efforts to accurately grasp new waves of innovation in information and communications technology and to make our settlement systems support the advances of financial institutions and private payment systems.

future financial institutions will have to construct advanced risk management systems covering operational risk and interest rate risk in banking accounts, and also establish a high quality capital base consistent with the level of risks they carry. to establish a more efficient and stable financial system, market discipline is important. it is necessary that financial institutions constantly strive for sound management and higher profitability fully realizing that their every move is being closely monitored by the market. from this viewpoint, it becomes important for them to actively disclose their financial conditions according to appropriate accounting methods. in this regard, we have received criticism from abroad that accounting methods and disclosure standards in japan need to be improved in a number of areas. in response, i have to say that based on the lessons we learned from the bursting of the bubble we have been rapidly improving the infrastructure related to disclosure, including improvement of the standards for write - off and the provisioning of non - performing assets. also, consolidated balance sheets have been refined and markto - market accounting expanded from the viewpoint of international compatibility. in the area of corporate information disclosure, markets have begun to positively evaluate those firms that see legally required disclosure standards as minimum standards and which at their own initiative disclose management strategy and financial conditions beyond such minimum standards. i hope these movements will further prevail and take firm root in japan. how should the bank of japan respond to changes in the financial system as innovation in information and communications technology progresses? before examining this issue, let me begin by briefly reviewing the role of the bank of japan in the context of the financial system and the payment system. in general, banknotes issued by the central bank finalize the payment of transactions when handed over to transaction counterparties. similarly, current accounts with the central bank can also finalize payment, a function which is supported by public confidence in the central bank. as such, settlements through the liabilities of the central bank, namely banknotes and current accounts, possess “ finality ” in the sense that they completely settle payment. furthermore, various private sector clearing systems eventually complete fund settlement as well as securities settlement by directly or indirectly making use of the medium of settlement with finality conferred by the central bank. thus, each payment system is operated in a responsible manner by a respective steering body, and the central bank is responsible for maintaining the smooth and safe operation of the nation ’ s overall payment systems. article 1 of the bank of japan law clearly stipulates that the bank ’ s mission is to maintain the smooth and stable operation