inflation is not enough to define a robust policy strategy. it needs to be reinforced through a perspective of a leaning - against the wind to avoid monetary policy becoming pro - cyclical in relation to boom - bust credit and leverage cycles. after the crisis occurs, the policy has to be conducted according to the separation principle that allows a central bank to separate the decision on the appropriate monetary policy stance and the decision on the support of the financial system. we clearly demonstrated this in april when we decided to leave the non - standard measures unchanged, but at the same time decided to increase our key policy interest rates. in the future we will continue to live up to our mandate. we will do whatever is necessary to deliver price stability in the medium term, bis central bankers ’ speeches using our policy interest rates, and continue to contribute to the stability of the financial system, using our non - standard measures. conclusions to sum up, significant progress is being made in europe to produce a more comprehensive and encompassing concept of economic governance. looking forward, i believe however that it is crucial that the euro area dimension of economic governance is further reinforced in order to be commensurate with the wide range of sources and channels of financial instability, which has been made evident by the financial crisis. this reinforcement should involve two main institutional moves : closing the gap between the economic and financial aspects of euro area governance by fully integrating financial supervision within the concept of economic governance ; and, consequently significantly strengthening the arrangements for financial supervision within the euro area, which could be supported by the establishment of a pan - euro area resolution fund. de facto, we are already seeing some progress in the integration of financial stability within economic governance through the european financial stability facility and the future setting - up of the european stability mechanism. the use of these facilities to provide loans for banking sector recapitalisation reflects the recognition that crisis management for sovereigns and for financial institutions is increasingly intertwined. perhaps over time this will provide the foundation for a more integrated european system of crisis prevention and management for the public and financial sectors. ultimately, it is every euro area country ’ s interest that the collective governance arrangements reflects the reality of economic and financial integration. following this path of necessary gradual reforms is essential for the efficiency and welfare of the whole euro area. bis central bankers ’ speeches

sharply to the downside. 3. u. s. economy next, i will discuss the u. s. economy. although the lehman shock originated in the united states, the u. s. economy has regained momentum since the plunge and has been growing at an average annual rate of around 2 percent. in the october – december quarter of 2012, the real gdp growth rate slowed due to negative contributions from inventory investment and government spending, but domestic final private demand items, such as private consumption and housing investment, maintained their uptrend. with regard to business sentiment, the business sentiment index for the nonmanufacturing sector has stayed firm. meanwhile, the index for the manufacturing sector fell temporarily to around the breakeven point of 50 reflecting the deceleration of the euro area and chinese economies together with the “ fiscal cliff ” problem in the united states, but it has recently been recovering. as for the outlook, assuming that uncertainties arising from fiscal and other problems are gradually dispelled, i expect that business sentiment in the manufacturing sector will gradually pick up, and that, as a result, production and business fixed investment will gain momentum. as for the employment situation, the unemployment rate, which had remained between approximately 4 to 6 percent, jumped to around 10 percent after the lehman shock occurred. in the four years thereafter, the unemployment rate fell back only to slightly below 8 percent. compared with the loss of about 9 million jobs, new jobs created totaled only about 6 million despite an increase in the working population. however, as the number of employees has been steadily rising, the employment situation is improving as a trend. with regard to developments in the household sector, car sales have recovered considerably and housing prices, which had bottomed out, are starting to rise, albeit moderately. the number of housing starts is still around half of the level seen before the bursting of the housing bubble but is increasing moderately. viewed from another angle, the current low level means that there is still ample room for growth. the lehman shock was caused by the formation and bursting of the u. s. housing bubble, so it is expected to take a long time before the excess debt in the household sector that was created during the bubble ’ s formation is resolved. this balance - sheet problem in the household sector, coupled with downward pressure arising from the fiscal side, has probably held down u. s. economic growth to around 2 percent, although the growth rate without these negative factors would have been essentially somewhat