bank of japan ’ s may report of recent economic and financial developments1 bank of japan, 22 may 2002. * the bank ’ s view * * the pace of deterioration in japan ’ s economy has moderated, with production starting to pick up reflecting the increase in exports and progress in inventory adjustment. with regard to final demand, business fixed investment continues to decrease and private consumption remains weak. moreover, housing investment remains sluggish and public investment is on a downtrend. meanwhile, net exports ( real exports minus real imports ) are increasing due to the recovery in overseas economies. industrial production is starting to pick up, reflecting the increase in exports and also the further progress in inventory adjustment as a whole. however, firms are maintaining their stance on reducing personnel expenses given persistently strong excessiveness in employment. therefore, employment and income conditions of households continue to worsen, reflecting the decrease in the number of employees and the faster pace of decline in wages. turning to the outlook, with respect to domestic demand, business fixed investment is expected to follow a downtrend for a while, judged mainly from leading indicators and firms ’ investment plans. private consumption is also likely to remain lackluster mainly due to worsening employment and income conditions. in addition, government spending is basically projected to continue a downward trend. meanwhile, as for exporting conditions, overseas economies, especially in the u. s. and east asia, are likely to follow a recovery path. the worldwide inventory adjustment in it - related goods has come to an end except for some goods such as networking equipment. moreover, the yen is still lower than where it was last autumn. under these circumstances, exports are projected to continue a moderate recovery. industrial production is likely to follow a gradual uptrend supported by the increase in exports and also by the progress in inventory adjustment. this increase in production will help corporate profits to recover, particularly in the manufacturing sector, and is expected to gradually support domestic private demand such as business fixed investment. overall, japan ’ s economy is projected to stop deteriorating as a whole since an increase in exports and production will lead to an improvement in corporate profits and in turn, domestic private demand. however, in addition to the weak employment and income conditions, the pace of increase in exports and production is likely to remain modest on balance. therefore, it will take a while for the positive effects, stemming from the developments in exports and production, to spread across the nonmanufacturing sector, small firms

##tories. public consultation on these revised international standards is currently under way. the goal of all of these efforts is to develop a consistent international approach to the regulation and supervision of derivatives products and market infrastructures as well as to the sound implementation of the agreed - upon approaches. our aim is to promote both financial stability and fair competitive conditions to the fullest extent possible. infrastructure issues the dodd - frank act addressed both the infrastructure of the derivatives markets and the regulation and supervision of its dealers and major participants. central counterparties are given an expanded role in the clearing and settling of swap and security - based swap bis central bankers ’ speeches ( hereafter referred to as “ swap ” ) transactions, and the board believes benefits can flow from this reform. since 2005, federal reserve staff members have worked with market participants to strengthen the infrastructure for otc derivatives, including developing and broadening the use of central clearing mechanisms and trade repositories. market participants have already established central counterparties that provide clearing services for some otc interest rate, energy, and credit derivatives contracts. if properly designed, managed, and overseen, central counterparties offer an important tool for managing counterparty credit risk, and thus they can reduce risk to market participants and to the financial system. both central counterparties and trade repositories also support regulatory oversight and policymaking by providing more - comprehensive data on the derivatives markets. the board is committed to continuing to work with other authorities, both in the united states and abroad, to ensure that a largely consistent international approach is taken to central counterparties and trade repositories and that their risk - reducing benefits are realized. title viii of the act complements the role of central clearing in title vii through heightened supervisory oversight of systemically important financial market utilities, including systemically important facilities that clear swaps. this heightened oversight is important because financial market utilities such as central counterparties concentrate risk and thus have the potential to transmit shocks throughout the financial markets. the financial stability oversight council is responsible for designating utilities as systemically important. through its role on the council, the board helped develop the designation process that was released for comment in march. separately, the board is also seeking comment on proposed riskmanagement standards that would apply to those designated utilities supervised by the board under title viii. 1 as part of title viii, the board was given new authority to provide designated utilities with access to reserve bank accounts, payment services, and emergency collateralized liquidity in unusual and