scheme implemented by the government has been underpinning their funding conditions. in fact, various surveys including the june tankan show that both large and small firms see their financial positions and lending attitudes of financial institutions as having improved slightly. on the other hand, issuance of corporate bonds by firms with low credit ratings has remained subdued. moreover, a large number of firms have continued to see their financial positions as weak and lending attitudes of financial institutions as severe, although firms'financial situation in these regards has begun to improve slightly. with regard to future developments in corporate financing, there is uncertainty about whether these signs of improvement will become widespread. the financial positions of japanese financial institutions remained relatively stable even after the emergence of the subprime mortgage problem. unlike in the united states and europe, failures of financial institutions have not occurred in japan. nevertheless, the financial statements of financial institutions for fiscal 2008 showed net losses for the first time in five years for major and regional banks and in six years for shinkin banks, mainly due to a decline in net operating profits and an increase in losses on securities. although the outcome depends on future developments in economic activity as well as in corporate profits, we cannot rule out the possibility that the assessment of firms'credibility by financial institutions and market participants may become more severe. in that case, lending attitudes of financial institutions might become more cautious, and conditions for corporate financing might not recover fully. the bank will therefore continue to examine developments in corporate financing, with the assistance of our branch network. ii. adverse feedback loop operating between financial and economic activity if you will bear with me, let me take a moment to explain in more detail the phrase " adverse feedback loop operating between financial and economic activity, " which i mentioned earlier. although it may sound unfamiliar, it is a key phrase for understanding the current global economic downturn and in making economic forecasts. in the explanation that follows, for the sake of clarity, i will substitute " financial institutions " for " financial activity " and " economic conditions " for " economic activity. " financial institutions must comply with many regulations, including the banking act, to ensure their soundness. this is because they have a financial intermediation function to provide firms and households with funds that have been entrusted to them by depositors. one of these regulations requires financial institutions to hold capital above a certain level that corresponds to the total amount of risk they take, for example, the probability of failures among the firms they lend to. to put

hirohide yamaguchi : recent economic and financial developments and the conduct of monetary policy speech by mr hirohide yamaguchi, deputy governor of the bank of japan, at a meeting with business leaders, hakodate, 22 july 2009. * * * introduction i am honored to have this opportunity to speak today before business leaders in hakodate and the donan area. i would like to express my gratitude for your cooperation in interviews with staff from the hakodate branch and in the bank of japan's surveys. information obtained from these interviews and surveys is very valuable and utilized fully in appropriately assessing economic and financial developments and conducting monetary policy. hakodate is a city that opened the door to modernization and internationalization by becoming one of the first ports in japan to engage in international trade. it has played an extremely important role in hokkaido's economy as well as that of japan as a whole. the bank established a local office in hakodate in 1893, which is now the hakodate branch, the second oldest of the existing branches after the osaka branch. this was two years before the establishment of the hakodate chamber of commerce and industry. i believe that the fact that the hakodate branch has been able to continue its central banking operations here for more than a century owes much to the understanding of and support from the business community as well as the people of the area in general. about ten years after the opening of the bank's local office in hakodate, a man named ryokichi kawada came to hakodate to serve as the executive of a local shipbuilding company. he worked at the company while establishing a farm in the town that is now called nanae. he began growing irish potatoes, which are suitable for cultivation in hokkaido's climate, and devoted his life to increasing their popularity. since he held the title of baron ( danshaku ), which he had received from his father, the potatoes were named danshaku potatoes, and they have since become one of hokkaido's well - known products. you may well be familiar with this story, but i think it is less well known today that his father was koichiro kawada, the third governor of the bank, who established the local office in hakodate. i was very interested to learn of this connection between the bank and hakodate. before exchanging views with you, i would like to talk about the current state of and outlook