germany is a very familiar place. as a young boy in the late 1960s, i was brought up in beautiful hansestadt hamburg. it was during this period that my father took me to west berlin for the first time. my second visit was in 1988, when, as i mentioned, the imf held an annual meeting in west berlin and i attended the japanese delegation. so, this is my third visit. but this visit is very special as it is my first one to the capital city of the united germany. iii. origins of japan's economic ordeal the two central banks, the bundesbank and the bank of japan, have had the reputation as tough inflation fighters. however, the policy priority started to diverge in the 1990s. our mission became focused on ending deflation and bringing japan's economy back on track to sustained growth. this is the topic that i now want to talk about. let me begin with the background to the difficulties that japan has faced. i think the root cause of japan's economic ordeal is the bursting of asset bubbles in the early 1990s. slide 1 looks at the magnitude of the bursting of asset bubbles. as you see in the left panel, the cumulative capital gains during the bubble years in japan amounted to more than 450 percent of nominal gdp. the bursting of the bubble resulted in a brutally large swing in the opposite direction, with the cumulative capital losses equivalent to almost minus 230 percent of nominal gdp. in the united states, which was the epicenter of the global financial crisis, the corresponding numbers were 300 percent and minus 100 percent, respectively. in both cases, the economic impacts were destructive. in japan's case, the toll was almost exclusively on the banking sector, which often had been compared to the invincible armada during the bubble era. slide 2 shows the cumulative credit losses experienced by japanese banks. this figure climbed constantly until it reached almost 100 trillion yen, which corresponds to about 20 percent of japan's nominal gdp. during the decade of japan's financial crisis, more than 180 financial institutions, including internationally active ones, went under. the banking sector was broken. this meant the loss of the credit intermediary function, which was badly needed at the time to support economic recovery. when japan's economy overcame the aftermath of the homegrown financial crisis of the 1990s, it was struck by another major shock, triggered by the u. s. subprime loans problem and accentuated by the collapse of lehman brothers :

would be key to ensuring users'trust in innovative financial services utilizing new information technologies, and promoting the developments of such services. ensuring " trust " and " governance " there is also concern voiced about whether the extensive application of ai might take financial market infrastructure beyond the control of human beings. such a concern might be based on human beings'ambivalence toward ai, which was elegantly described in " 2001 : a space odyssey, " a film released almost half a century ago. the reason why such concern arises in the application of ai to financial services, is probably because " trust " is a critical factor in financial services, along with several other sectors, such as medical services. although we already have highly intelligent and skilled robots, few individuals welcome, without hesitation, undergoing completely robotic surgeries without any human intervention, as we cannot completely get rid of tail risks. to facilitate the application of ai to financial services, it would be important for relevant entities to establish reliable structures for effective governance and responsibility in case of tail events to ensure public trust to innovative financial services. iii. ai and the frontiers of finance keeping these issues in mind, new information technologies such as ai and big data analytics have the potential to broaden the frontiers of finance and contribute to the economy. ever since the creation of money, finance has continuously developed through utilizing available technologies such as minting, printing, telecommunication, and computers. for instance, securities were originally based on paper and printing technologies. although the developments in information technology have replaced paper securities with digital signals, the securities market continues to contribute to the economy. rather, as securities have been dematerialized by digital signals, their market has further developed, since dematerialization freed securities from geographical limitations. now, advanced securities markets have become a core financial infrastructure, linking the supply and demand of funds not only domestically but also across borders. in the economy, finance functions to connect various economic entities, wide - ranging goods and services created by them, as well as investors and projects beyond time and space. i believe such a function of finance will become more important in view of globalization and technological innovation. since ai and big data analytics enable advanced information processing, they inherently have the potential to strengthen the functions of finance. for example, they could contribute to the growth of the global economy through matching investors and projects worldwide more effectively, and increasing the number of projects to be carried out. additionally, new information technologies would enable financial service providers to offer more personalized and