' s economy is undoubtedly confronting important challenges. the environment surrounding japan's economy faces significant changes such as progress in information and communication technology and the rapid rise of emerging economies as well as economic maturation and globalization. faced with such drastic changes, the bank believes that the existing economic model, which supported japan's postwar economic growth, needs to be replaced, and that the driving force of the new model should be innovations, both in technology and knowledge. the bank considers it essential for the private sector, the government, and the bank to coordinate their efforts toward the same goal in order for japan's economy to adapt itself boldly to the new environment. the bank will continue to do its utmost to carry out its mission of achieving price stability and maintaining an orderly financial system.

in banks'stock prices is becoming conspicuous, mainly reflecting market participants'severe view of the profitability of japanese financial institutions. in corporate finance, the financing conditions of firms are accommodative on the whole, but the environment continues to be severe for firms of relatively low creditworthiness. governor fukui made the same statement regarding the semiannual report on currency and monetary control for the first half of fiscal 2002 before the committee on financial affairs, house of councillors, on april 17, 2003. iii. conduct of monetary policy for almost a month now, i have taken the initiative to address the following two problems : first, to prevent any immediate crisis taking into account the developments in iraq ; second, to strengthen the effectiveness of monetary easing for the longer term. the bank has been closely monitoring how the development of the situation in iraq would affect the economy, especially through the stock and foreign exchange markets, and provided a large amount of additional liquidity to ensure financial market stability with the approach of the fiscal year - end. in addition, the bank has decided for the time being to apply the official discount rate to the lombard - type lending facility on any business day, suspending the restriction on the maximum number of days for such use. use of this lending facility enables financial institutions that hold current accounts with the bank to borrow funds from the bank at need within the value of collateral submitted. reflecting the above measures, liquidity concern in the money market has been dispelled, and there was no significant disruption at the turn of the fiscal year. in its future conduct of monetary policy, the bank considers it an important task to ensure that the provision of ample liquidity leads to a revitalization of economic activity and the overcoming of deflation. based on this understanding, the bank is examining the basic framework for the conduct of monetary policy, with a view to enhancing the transparency of monetary policy and strengthening the transmission mechanism of monetary easing. the bank's current quantitative easing policy has contributed significantly to ensuring financial market stability and to preventing the economy from falling into a deflationary spiral. however, the financial intermediary function of banks has been weak and economic activity has yet to be sufficiently stimulated. it is apparent that the nonperforming - loan ( npl ) problem is the largest impediment to the effectiveness of the financial intermediary function in the financial system. thus, it is essential for the private sector and policymakers to coordinate their efforts to resolve