the volume of public works contracted has, since spring 1996, stayed virtually unchanged from the level of the previous year as orders included in the economic policy package of september 1995 subsided. public works activities such as shipments of related goods increased until summer 1996, reflecting time lags between the order and actual implementation of public works. recently, however, they have also peaked out. real exports have shown a moderate increase as the effects of the yen ’ s depreciation since summer 1995 have gradually become apparent after a time lag. meanwhile, real imports have continued to rise, in part supported by structural elements, e. g., the increased supply capacity of asian economies. however, the tempo of increase has somewhat slowed, which also reflects the depreciation of the yen. thus, both the real trade surplus and the nominal current account surplus declined rapidly until the first half of 1996 but have been rising since summer 1996. industrial production increased steadily in the third quarter 1996 by an annual rate of about 6 per cent and also rose significantly in october. these increases reflect the progress in inventory adjustments and the continued increase in shipments of capital goods, which is closely related to business fixed investment. they also reflect higher growth in domestic sales and exports of passenger cars which have a large influence on production activities. industrial production is expected to increase by an annual rate of about 10 per cent in the fourth quarter 1996 on the whole. the tankan of november 1996 shows that the corporate profits of principal firms in both the manufacturing ( excluding petroleum refining ) and non - manufacturing sectors are forecast to continue increasing in fiscal 1996. profit levels have risen particularly for manufacturing firms ; the current profit - to - sales ratio is expected to reach over 4 per cent for the first time in five years. in these circumstances, business confidence of principal manufacturing firms improved moderately and is forecast to continue its upward trend. in the assembly industry in particular, the percentage differential between firms responding " favorable " and " unfavorable " has turned positive for the first time since february 1992. for non - manufacturing firms, business confidence has strengthened but it is forecast to weaken somewhat in the near future. on average, business confidence of non - manufacturing firms is on an upward trend. small firms in both the manufacturing and non - manufacturing sectors are expected to show continuing growth in profits in fiscal 1996. however, while business confidence of manufacturing firms continues to improve moderately, that of non - manufacturing firms remains virtually unchanged partly as a result of uncertainties about the outlook for

that financial institutions have been striving to bolster their capital by raising additional capital and increasing internal reserves, and that financial institutions have not had any liquidity concerns thanks to the bank ’ s ample liquidity provision, we believe that stability of japan ’ s financial system is not threatened by the disaster. as for the financial environment surrounding japanese firms and households, financial conditions have generally continued to ease, although weakness has been observed in the financial positions of firms, mainly small ones, since the earthquake. i have heard that, even here in kanagawa prefecture, some non - manufacturing firms whose ability to procure financing tends to be heavily dependent on their revenues have been concerned about their own financing conditions after the earthquake. funds - supplying operation to support financial institutions in the disaster areas and broadening of the range of eligible collateral the bank ’ s measures i have explained so far are those responses taken in the time of emergency immediately after the earthquake occurred. in addition, as a next step, the bank decided at its latest monetary policy meeting held on april 6 and 7 that it would be necessary to support the smooth financial functioning of financial institutions in disaster areas so that restoration and rebuilding in these areas could steadily progress. specifically, the bank decided to introduce a funds - supplying operation that provides financial institutions with offices in the disaster areas with a one - year loan of 1 trillion yen in total at a rate of 0. 1 percent per annum in order to provide financial support for their initial response efforts to meet expected demand for funds for restoration and rebuilding. in line with this, the bank also decided to broaden the range of collateral eligible for money market operations with a view to ensuring that financial institutions in the disaster areas have sufficient funding capacity. let me explain briefly the background to this decision. the household sector and the corporate sector have ample funds, as they have maintained excess savings over a protracted period, and therefore, from a macroeconomic viewpoint, financial institutions would have no difficulty in financing. however, financial institutions in the disaster areas have to meet high demand for funds, ranging from the immediate demand from firms for cash for operating funds and cash on - hand, and from individuals for living expenses, as well as future bis central bankers ’ speeches demand for funds for restoration and rebuilding. considering the damage caused to the affected areas, however, new deposits are unlikely to increase for the time being and an effect is likely to materialize from loans going into arrears. given such circumstances, in addition to the current