household financial conditions ; avoiding unrealistic plans likely to result in recidivism ) ; 2. avoidance of unnecessarily formal legal procedures ; 3. avoidance of perverse incentives for strategic default by those who can truly afford to pay ; and 4. no unavoidable losses to lenders, but the banks to absorb such unavoidable losses using their increased capital. prudential capital the mortgage arrears problem clearly has capital implications for banks and has been a subject of close attention. at the central bank we recognised the deteriorating trend in mortgage arrears when we carried out our prudential capital assessment review earlier this year. in setting the level of additional capital required for the banks we provided for the absorption of potential losses arising out of situations where mortgage holders were genuinely unable to fully repay their loans. the 2011 pcar was conducted in a transparent way, using conservative assumptions and external validation and this review will be updated again in 2012 to take account of developments in the market. the additional capital received by the banks after pcar – much of it injected by the government – now provides more capacity for banks to address individual mortgage arrears cases and to restructure mortgage loans on a case by case basis. it is important that banks face up to the scale of the problem and provision accordingly. however, it is clear too that neither the banks nor the taxpayer have unlimited financial resources to eliminate all the adverse developments in the mortgage market. the taxpayer cannot afford – and should not be asked to – write off the negative equity in the housing market or underwrite open - ended debt forgiveness schemes. as we tackle the mortgage arrears issue we need to be mindful that the design of any restructuring or modification by banks - and of the broader bankruptcy policy framework - if not calibrated properly, could create incentives for some to cease payment on their commitments which could exacerbate the arrears problem and the cost to taxpayers. operational capacity it is clear that if lenders need to make case by case decisions then they must put in place the operational capacity to work through the problem properly and to meet their obligations under the code. it is clear too from information we are receiving from consumers and other sources that that the practice so far has been mixed. this is now a major focus of our supervisory effort. frankly, we intend to be breathing down the necks of the banks to make sure they are coming up to the mark. i said earlier that we

is, overseas economies, mainly advanced economies with aggressive macroeconomic policies, have continued to see relatively high growth, although differences in the pace of recovery across countries and regions have increased. in particular, production activity in manufacturing industry has been firm, supported by strong growth in global digital - related demand, and the world trade volume has kept showing a steady rise ( chart 2 ). in this situation, japan's exports and production - - led by it - related and capital goods - - have continued to increase. corporate profits have also continued to show solid improvement led by manufacturing industry, and profits in the corporate sector overall have already surpassed the level before the pandemic ( chart 3 ). this favorable business performance has also led to a pick - up in business fixed investment, and firms have been keen to invest, especially in digital - related areas. regarding the outlook, the main scenario is that private consumption will remain stagnant for the time being while public health measures are in place or vigilance against covid - 19 continues, but the recovery trend in japan's economy will subsequently become more pronounced as the impact of covid - 19 gradually wanes. the key question is whether private consumption turns to a recovery while the economy is supported by firm developments in the corporate sector, thereby intensifying the virtuous cycle in the overall economy. in this context, i think the following two issues require attention. the first is how the recent spread of the delta variant affects private consumption. as mentioned earlier, face - to - face services in particular have been under downward pressure recently. however, bankruptcies and unemployment have been fairly curbed, partly due to various government measures and the bank's measures to support financing. looking at the employment and income situation, which determines developments in private consumption, the rise in the unemployment rate consequently has been modest relative to the decline in economic activity ( chart 4 ). in addition, employee income, which declined in fiscal 2020, has bottomed out and is picking up, partly because of a rise in wages in industries with acute labor shortages. meanwhile, vaccinations in japan have been progressing at a fast pace, and the share of the fully vaccinated population has risen to a level that is comparable with the united states and europe. looking ahead, the challenge will be how to protect public health and improve consumption activities simultaneously, for example through the utilization of vaccination certificates and evidence of a negative covid - 19 test. given