environment such as bank lending or the degree of uncertainty about the future, and dealt a major blow to production in the japanese manufacturing industry, which supplies such goods globally. second, the impact of the adjustment of excesses and balance - sheet adjustment also tended to become significant. up to the mid - 2000s when the global economy enjoyed high growth supported by the credit bubble, there was a worldwide boom in spending on consumer durables. the japanese manufacturing industry, which had established a comparative advantage in these areas, greatly benefited from this boom. however, in retrospect, and setting emerging economies aside, the boom in the united states and europe was based on overly optimistic expectations and was unsustainable. and the balance - sheet adjustments in the united states and europe, which ensued with the unwinding of the boom, directly hit japanese manufacturing industry. and third, there was a reaction to the considerable depreciation of the yen from the mid2000s. to determine the effects of changes in exchange rates on export competitiveness, it is necessary to take into account differences in price fluctuations at home and abroad as well as the weights of trade. looking at the real effective exchange rate of the yen, adjusted for these factors, we see that from around 2005 to mid - 2007 it depreciated by more than 20 percent, and remained at its lowest level in the past 20 years, which supported a considerable increase in japan ’ s exports. however, since the outbreak of the global financial crisis in the autumn of 2008, the yen appreciated rapidly and has recently been trading around its level in the early 2000s. this suggests that the portion of exports supported by the depreciation of the yen since the second half of the 2000s has been eliminated. based on these observations, the lesson that can be learned from the experience of the global financial crisis is not that japan ’ s economy needs to make a full - fledged shift from being external demand - dependent to being domestic demand - driven, but that it is important that the global economy aims to achieve sustainable growth. given that globalization is irreversible, it is not appropriate to see external demand and domestic demand as opposing concepts. i would emphasize that, for japan ’ s economy, it is both important to reap the fruits of global economic growth and to lay the groundwork for expanding domestic demand. v. five challenges based on the lessons learned from the recent crisis and looking at the prospects for japan ’ s economy from next year onward, various challenges

as they were significantly affected by political events, and, even though we were expecting rapid us monetary policy tightening and a strong dollar well in advance, the change in the dot plots in the september fomc meeting was more than we expected. on top of that, the fact that two major central banks in japan and china are the two exceptional cases of loose monetary policies made our currency depreciate much more than expected in september before it started to stabilize recently. 1 / 2 bis - central bankers'speeches more recently, prices and our exchange rate have somewhat stabilized and the speed of us interest rate hikes is expected to be less rapid as indicated by the recent press conference by chairman powell. ensuring price stability and reducing inflation through tight monetary policy are still our priority. at the same time, as the recent interest rate increase has been fast by any historical standard in korea, there are growing signs of stress in various sectors, and maintaining financial stability, especially in non - banking financial sectors, is becoming an important issue. in fact, we are seeing signs of money move from non - banking sectors to the banking sector after deposit rates in banks significantly increased following policy rate hikes. how to recycle those flows back to non - banking sectors is an important policy issue for the bok to manage financial market stability in this period of high inflation and tight monetary policy. now, back to long - term challenges facing the korean economy. among many challenges, the risk of economic and geopolitical fragmentation stands out to me the most. in fact, it is a short term challenge, too. the escalating us - china tensions and further deterioration of the russia - ukraine war are likey to lead to financial and trade fragmentation and consequently, the contraction of global growth and trade. it will be structural headwind limiting long run growth of the korean economy, which is heavily dependent on exports. in this respect, global cooperation at the economic and political levels is more urgently needed than ever. countries responsible for global leadership, among others, need to promote collaboration and cooperative competition, since the weakening of trade and global growth stemming from fragmentation can have negative impacts on all countries. in retrospect, china's rapid growth over the last two decades allowed the korean economy to delay painful restructuring, while reaping the benefits of trade expansion with china. we no longer have that luxury. korea cannot any more avoid restructuring reforms, even though painful, in diversifying its supply chains and concentration of key industries