signs that the slowdown is bottoming out, such as the increasing trend in exports and bank lending. the chinese government has accelerated approvals for infrastructure investment and introduced subsidies for energy - saving electrical appliances and other goods. with the pace of consumer price inflation decelerating, the authorities have also started stimulating the economy on the monetary front, lowering the benchmark lending rates for two consecutive months. looking ahead, the growth rate of the chinese economy is unlikely to reach dramatic levels, but it is likely to rise gradually as these policy measures start producing effects. in the nies and the asean economies, exports have been affected by the slowdown in europe and china, but domestic demand has been firm on the whole, and production has been recovering moderately. as for the outlook, including other emerging economies such as brazil, the growth rate of emerging and commodity - exporting economies will likely increase gradually reflecting accommodative financial conditions and a recovery in real purchasing power following a decline in inflation rates. b. japan ’ s economy 1. economic activity i will now explain the current state of, and outlook for, japan ’ s economy based on the overseas economic developments i have just outlined. until the beginning of autumn 2011, japan ’ s economy picked up steadily following the plunge caused by the great east japan earthquake, which struck just as the economy was recovering from the lehman shock. thereafter, however, it remained more or less flat on the whole until around the early spring of 2012 mainly due to the adverse effects of the slowdown in overseas economies and the appreciation of the yen. more recently, with domestic demand remaining firm – led by reconstruction - related demand and private consumption – and exports continuing to show signs of picking - up, economic activity on the whole has started picking up moderately. the firmness in domestic demand is attributable to the following factors. demand for restoration and reconstruction of social infrastructure and of disaster - stricken facilities and homes has led to increases in public investment, business fixed investment, and housing investment. reconstruction - related demand has also been underpinned by changes in the behavior of firms and households triggered by the disaster. examples are efforts to strengthen the earthquake resistance of buildings and facilities and to bolster business continuity systems, investment in the area of new energy sources, and the purchase of energy - saving products. meanwhile, private consumption has been boosted by pent - up demand, that is, a recovery in demand following the temporary restraint due to the effects of bis central bankers

while also ensuring that the authorities have the tools required to handle the situation, should the institutions nevertheless become distressed. like other firms, banks can fail without passing the bill to society and its citizens. but the brrd cannot stand alone. there is a need for regulation of financial companies. for example, capital and liquidity requirements must apply. the requirements as to how much capital banks and mortgage banks must hold have evolved considerably over the last 30 - 40 years. seen from today's perspective, starting with basel i, it included very simple rules regarding the capital required if a bank was to lend money. there was a fairly rough breakdown by loan risk, which meant that loans were weighted according to their riskiness. the belief that it was possible to estimate the loss profiles of various customer and loan types, and hence to calculate the capital requirements for unexpected losses on loans, led to basel ii. as we all know, it did not stop there. we now have basel iii, and complexity has increased. fortunately, the capital requirements have also increased. not only capital has been regulated. there are also rules on liquidity, fit and proper rules for management and rules on investor protection now. page 5 of 8 and many more. all these rules and measures address important issues. and they have been necessary because there were insufficient incentives to ensure that the financial sector behaved. we cannot and should not regulate all aspects of the financial sector in detail to prevent things from going wrong. it would simply not be possible to formulate such rules and it would also be virtually impossible to observe them. the banks'managements must have a certain degree of freedom to run their businesses. i am not in favour of further detailed regulation. and perhaps we should consider whether the fence poles are in the right place or whether we have fenced in some areas too much. so i am on the side of simplifying and streamlining rules and regulations if possible. and as i have said, that is possible now because the brrd ensures that irrespective of the size of a bank, we can manage it in a crisis situation. the critical functions will be continued, and investors and creditors will foot the bill – not the taxpayers. in other words, the brrd is a prerequisite to do away with some of the detailed regulation. if we do so, it may give managements and boards more space to actively consider the business model and ethical principles on which their business is to be based. it is