bank of japan ’ s december report of recent economic and financial developments1 bank of japan, communication, 18 december 2000. * * * the bank ’ s view2 japan ’ s economy continues to recover gradually, albeit at a somewhat slower pace due to decelerating export growth. with regard to exogenous demand, public investment is decreasing gradually since the implementation of the supplementary budget for fiscal 1999 has peaked out. net exports ( real exports minus real imports ), which had been increasing, are starting to level off as inventories of some raw materials and electronics parts became somewhat excessive in east asian economies. as regards domestic private demand, business fixed investment is on an increasing trend. the recovery in private consumption continues to be weak as a whole through lack of notable improvements in employment and income conditions, although there are somewhat positive signs in some indicators. housing investment is declining slightly. reflecting such developments in final demand, industrial production remains on a rising trend although the pace is somewhat slowing. corporate profits continue to improve, and the number of firms that take positive action, such as increasing the amount of fixed investment, is rising, especially in high - growth sectors. income conditions of households still remain severe, but regular and overtime payments as well as new job offers continue to increase in line with the recovery in corporate activities, and compensation of employees has stopped decreasing. as for the outlook, public investment is expected to maintain the current level for the time being, but is likely to start increasing again in the future along with the implementation of the new economic stimulus package by the government. while the u. s. economy is decelerating gradually, the expansion in overseas economies is projected to continue, albeit at a slower pace. in these circumstances, exports are likely to remain level for the time being mainly due to inventory adjustments in east asian economies. meanwhile, imports are projected to continue increasing, particularly for those of consumer goods, and capital goods and parts. therefore, net exports will decline slightly for a while. in the corporate sector, firms still strongly feel that they have excess equipment and that they should reduce their debts to restore financial soundness. however, it is very likely that fixed investment in high - growth sectors, including those related with information technology services, will increase as corporate profits continue to recover. moreover, an improvement in corporate profits will increase household income and this in turn is expected to boost private consumption. however, the pace of recovery in household income will be modest for the time being, since firms ’

##obalisation, artificial intelligence, as well as the green transition and climate change adaptation policies. 1 / 7 bis - central bankers'speeches given the uncertain overall impact of these effects and the significant unknowns and ambiguity surrounding the computation of natural interest rates, their prospective level and evolution are not easily determined. turning now to the lessons learnt, experience gained during the past crises has been extremely valuable. first, monetary policy needs to remain flexible so that it can accommodate potential future shocks to price stability, of any nature and direction. second, financial stability considerations need to be taken into account in the decision making of monetary policymakers, in their pursuit of price stability. the past decade provided us with new insights into what monetary policy can do. we are now better prepared to implement the appropriate monetary policy mix, with standard and non - standard tools, if we were to face new challenges. we have a better understanding of what works and how to reduce possible side effects on the financial system. the provision of ample liquidity through non - standard measures in the context of the low interest rate environment contributed both correctively and preventively on the macroeconomy and the financial system. specifically : it alleviated impairments in the policy transmission mechanism ; it safeguarded the smooth functioning of the financial system and strengthened the bank lending channel ; it mitigated the negative impact of the financial sector turmoil on the economy ; it helped the euro area emerge from a crisis that threatened the monetary union's existence ; and it minimised recessionary risks, while ensuring price stability. at the same time, the prominent role of macroprudential and supervisory policies has been brought out during the past few years. by addressing risks to financial stability and increasing the resilience of the financial sector, these policies have supported the smooth transmission of monetary policy impulses and have contributed to price stability over the medium term. all in all, the resilience of the euro area financial sector has improved markedly and provides a cushion to future crisis episodes. several measures have contributed to this direction, such as, for instance, the establishment of the ( still incomplete ) banking union, with the single supervisory mechanism and the single resolution mechanism at its core. however, let me express my firm belief that we need more europe ; as integration and policy coordination in the monetary union progress – and with the completion of the banking union, which i consider of paramount importance – the euro area economy and its financial system will become increasingly resilient to future