toshihiko fukui : toward the further enhancement of financial services in japan speech given by mr toshihiko fukui, governor of the bank of japan, at a meeting of the council for financial innovation, tokyo, 4 november 2003. * * * today, i would like to talk about japan ’ s financial system and share with you my thoughts on the future of financial services. i. current state of japan ’ s financial system and the challenges it faces the bank of japan has sought to maintain financial system stability and promote economic recovery, by providing ample liquidity under the quantitative easing policy, to overcome deflation. the bank has also supported efforts by the financial services industry, using various means, to strengthen the soundness and functioning of the financial system. our strategy is two - pronged, aiming both to overcome deflation and to solve the financial system problem at the same time. as i have just noted, we face two problems simultaneously. while deflation hampers the resolution of the nonperforming - loan ( npl ) problem and delays the revitalization of the financial system, the malfunctioning of the financial system exacerbated by the npl problem weakens momentum for economic recovery. both at home and abroad, there are some who argue that we should focus exclusively on one of these two problems. i believe, however, that most people with a deep understanding of the issue would agree with us that these two problems are inseparable. in short, we consider it important to work steadily and continuously toward both economic recovery and the revitalization of the financial system. japan ’ s financial system has faced several critical moments over the past ten years or so. the failure of a number of large banks and securities companies is still fresh in our memories. many complicated issues remain to be resolved. for example, in addition to the npls that may be more directly attributed to the bursting of the asset price bubbles, there has been a constant stream of new npls stemming from structural problems in the japanese economy, which has made the npl problem more difficult to resolve. furthermore, efforts on the part of the financial services industry seem to have been largely negated by the continued decline of real estate and other asset prices, as the persistent economic stagnation has lowered the expected economic growth rate. it is true, however, that progress has been made in reform related to financial services and markets. frameworks have been established for the resolution of failed banks

of market participants how together we can improve the abs market and other financial markets. furthermore, through our on - site examinations and off - site monitoring, we wish to deepen discussions with banks and other financial services providers on ways to better manage their business in line with the enhancement of the market functions. the bank will enhance the effect of monetary policy by continuing to review market operations, as well as contribute to strengthening the functioning of the financial and capital markets. let me conclude by saying that, as our efforts to enhance financial services in japan bear fruit, i am confident that there will gradually emerge a completely new financial system, one which is innovative and provides the strong support to the country ’ s economy that it deserves. thank you for your kind attention.