mr hayami reports on recent monetary and economic conditions in japan and elucidates progress toward the reconstruction of japan ’ s financial system speech by the governor of the bank of japan, mr masaru hayami, at the research institute of japan in tokyo on 18 march 1999. i. introduction1 it is a great honor to be invited to the research institute of japan and have the opportunity to speak to you. i will begin with a brief outline of recent monetary policy management and then give my thoughts on today ’ s topic, the progress toward the revitalization of japan ’ s financial system. ii. recent monetary policy management monetary easing in february 1999 on february 12, the bank of japan decided to conduct a further monetary easing. the new guideline for the bank ’ s money market operations is to “ encourage the uncollateralized overnight call rate to move as low as possible ” while giving due consideration to avoiding excessive volatility in the markets. let me review the economic situation at the time of the decision. the pace of economic deterioration had been moderating since last autumn, supported by the increase in public investment. however, economic activities in the private sector remained sluggish, and business and consumer sentiment was persistently weak. moreover, the rise in long - term interest rates and the appreciation of the yen against the u. s. dollar since the end of last year had added to the downside risk to the economy. there was concern that, if these trends continued, the economic deterioration would not come to a halt, possibly accelerating once again in the future. in light of these developments, the bank judged that it would be appropriate to give maximum support to economic activity through monetary policy. there have been some changes in the financial market since the monetary easing. the overnight call rate has fallen, recently to close to zero percent, reflecting the bank ’ s provision of ample funds to the market. money market interest rates on instruments with relatively long maturities, such as one month and three months, have also declined considerably. in addition, long - term interest rates have marked a clear decline, although the monetary easing was probably not the only factor involved. the yen has generally followed a downward trend. stock prices, as measured by the nikkei 225 stock average, have recovered to around \ 16, 000. we believe that, if these trends in the financial markets continue, they will influence the economy positively through an improvement in returns on investment, a further alleviation of the

the previous survey are underlined ) : argentina, australia, austria, bahrain, belgium, brazil, canada, chile, china, the czech republic, denmark, finland, france, germany, greece, hong kong, hungary, india, indonesia, ireland, italy, japan, korea, luxembourg, malaysia, mexico, netherlands, new zealand, norway, the philippines, poland, portugal, russia, saudi arabia, singapore, south africa, spain, sweden, switzerland, taiwan, thailand, the united kingdom, and the united states. foreign exchange brokers are to report only foreign exchange transactions ( including cross - currency swaps and fx options ), and securities companies are to report only derivatives activities. classification of transactions : foreign exchange activities : spot, outright forwards, foreign exchange swaps derivatives activities : interest rate - related derivatives : forward rate agreements ( fras ), interest rate swaps ( ir swaps ), interest rate options ( ir options ) foreign exchange - related derivatives : cross - currency swaps, foreign exchange options ( fx options ) – 5 – two reporting institutions in japan. meanwhile, double - counting of cross - border transactions between two reporting institutions will be adjusted by the bis. thus, a simple aggregation of the results of all participating countries and regions will not be equivalent to the global statistics released by the bis. * * * regular derivatives market statistics in japan ( yoshikuni statistics ) ( end - june 1998 ) outline of survey the central banks of the g - 10 countries11 and the bank for international settlements ( bis ) have combined efforts to introduce new global derivatives market statistics based on the “ proposals for improving global derivatives market statistics ( yoshikuni report ) ” published by the bis in july 1996. the data were first collected at end - june 1998. in this paper, the bank of japan releases the results of this first regular derivatives market statistics pertaining to japan. 12 the bis will later publish the global results of outstanding derivatives positions of the reporting institutions. the aim of the bis in implementing a survey on global derivatives markets is to increase market transparency and to facilitate monitoring by central banks of these markets in regard to the macroeconomic and macroprudential concerns through two reporting frameworks, the first being semiannual statistics on derivatives outstanding covering only primary dealers, and the second being triennial statistics on derivatives turnover and outstanding covering a wider range of dealers. this first release of the regular derivatives market statistics corresponds to the first, while the april 1995 central bank survey of