settlement position of each financial institution was calculated simultaneously and its account at the bank was credited or debited. with this settlement mode, financial institutions need only the funds equivalent to their net debit positions at the time of settlement, and thus, it is an efficient mode from the viewpoint of the management of liquidity and business operations. under this mode, however, if a single financial institution in the system were to fail to meet its obligations, all payments would inevitably be suspended. in the worst case, this would lead to a chain of defaults at financial institutions. since the total daily value of settlement via the current accounts at the bank is substantial, reaching around 120 trillion yen, the effects of this risk could be grave. in order to reduce such risk, in 2001, the bank converted the designated - time net settlement to a settlement mode in which funds transfers are made immediately and individually. this mode is called " real - time gross settlement ( rtgs ). " in rtgs, each payment instruction sent by financial institutions for a funds transfer through current accounts at the bank is settled immediately and individually upon receipt. therefore, negative effects of one financial institution's failure to pay would be limited to counterparties to that institution and would be minimized for other institutions and the overall settlement system. while this is a considerable advantage, there is an issue specific to rtgs that need to be addressed. namely, it requires financial institutions to prepare larger amounts of intraday liquidity for settlement compared with the designated - time net settlement. in the current rtgs mode, if each and every financial institution holds back its payments until it receives payments from others, there is a possibility that all system participants would end up short of funds and settlements would not be processed ( chart 6 ). if such behavior became widespread, it could lead to gridlock, and smooth settlement, the aim of rtgs, would not be achieved. the breakthrough in addressing this issue was the substantial progress in information processing technology. the bank has been working on the implementation of the nextgeneration rtgs ( rtgs - xg ) project, and is planning to introduce new functions, " queuing and offsetting mechanisms, " into the boj - net funds transfer system in october 2008 [ reference 6 ]. the " queuing mechanism " will place payment instructions in the boj - net central queue. the " offsetting mechanism " will then identify sets of payment instructions in the queue that can be offset simultaneously and settle these

##itical risks and the rise in energy prices. the same can be said for japan. at the same time, through these initiatives, a number of challenges have been identified. from now on, it is important to work on these challenges and steadily make further progress toward decarbonization. 1 / 4 bis - central bankers'speeches ii. recent initiatives in japan and future challenges today, i would like to introduce three ongoing initiatives as prime examples of recent efforts in japan : ( 1 ) assessment of climate - related financial risks in a systematic manner, ( 2 ) enhancement of market functioning, and ( 3 ) support for firms'decarbonization efforts. let me also present my views on future challenges identified through these initiatives. a. assessment of climate - related financial risks in a systematic manner the first initiative is an assessment of climate - related financial risks in a systematic manner. significant progress has been made in scenario analysis, which is useful in comprehensively understanding climate - related financial risks. the network of central banks and supervisors for greening the financial system ( ngfs ) has been updating its climate scenarios every year since the first set of scenarios was released in 2020 ; it has also been working on bridging data gaps. several jurisdictions have already released the results of scenario analyses using the ngfs scenarios. in this regard, let me highlight the fact that, in line with the recommendations of the task force on climate - related financial disclosures ( tcfd ), the three major japanese banks have been disclosing the results of their own scenario analyses in their tcfd reports. this is a pioneering initiative even among global systemically important banks ( g - sibs ). in addition, the financial services agency and the bank of japan jointly conducted scenario analysis as a pilot exercise using common scenarios in cooperation with major financial institutions. 1 the objective of this exercise was to identify issues for future improvement of the analytical method rather than to make a quantitative assessment of climate - related financial risks. scenario analysis has its limitations in the level of sophistication and accuracy, as climate change and decarbonization will have a longterm and far - reaching impact on society, the economy, and on finance. the impact will also be complex and highly uncertain. recognizing such inherent uncertainties, financial institutions should carry out a comprehensive assessment of climate - related financial risks through scenario analysis, and make use of the findings in encouraging their client firms to take necessary steps to address climate change. in fact