mind that banking is a service industry and banks should pay close attention to the needs of customers. we are beginning to see some movements toward this direction, and we hope that they will prevail. before closing, let me briefly touch on the outlook for the financial system. the removal of the full protection of deposits in settlement accounts, scheduled in april 2005, should not be perceived simply as a change in the type of coverage of deposit insurance. it should be regarded as the termination of special protection that has been provided as a temporary buffer to avoid potential confusion. it should be recognized as a turning point for the reform of banks'management, which is free from the protection of the government. in this regard, banks must have clear business strategies for strengthening their profitability. at the same time, banks must have capital bases that are sufficient relative to the risks associated with their new business model. if banks find their capital bases insufficient, they need to take measures to boost their capital. given the limited time remaining until the removal of blanket deposit insurance, i think it is desirable to establish a new framework for injecting public funds into banks as the " last instance of public support " in the event that they cannot raise sufficient capital in the market. the establishment of such a framework will facilitate the process of restoring the soundness and effective functioning of the financial system.

toshihiko fukui : an overview of japan's economy and financial system summary of a speech by mr toshihiko fukui, governor of the bank of japan, at a meeting with business leaders in sendai, 1 october 2003. the speech was delivered by kazumasa iwata, deputy governor of the bank of japan, on behalf of the governor. * i. * * current state of the japanese economy and developments in financial markets let me begin by discussing the world economy. the u. s. economy has spurred a moderate recovery supported by personal consumption. recovery is beginning to spread to orders received by manufacturers and capital spending with the rise in world demand for it - related products. the large - scale tax cuts are beginning to have a positive impact on personal consumption. growth seems increasingly likely to start accelerating, while pressure on labor adjustment remains. economic activity in east asia is also heading for recovery. in china, the adverse effects arising from severe acute respiratory syndrome ( sars ) have virtually ended, and exports of the nies and asean are expected to increase with the worldwide recovery in it - related demand. in europe, there are signs of improvement in corporate sentiment, although the impetus for recovery is not yet evident. the above assessment of the global economy was endorsed at the g - 7 meeting last month in dubai. turning to the domestic arena, capital spending is recovering gradually as corporate profits increase. largely thanks to this recovery, real gdp posted an annualized growth rate of 3. 9 percent in the apriljune quarter, far exceeding market expectations. the tankan survey released on october 1 shows that the capital spending plans of large manufacturers for fiscal 2003 are expected to increase 11 percent on a year - on - year basis, and that of all enterprises is slightly larger than the figure in the previous year. thus, the recovery of capital spending is expected to become more certain. personal consumption has been weak recently due partly to the cold summer. however, signs of favorable change are emerging on the employment and income front. although overall economic activity remains virtually flat, signs of recovery are gradually being observed. the likelihood seems to be increasing that, with the recovery of exports and capital spending leading to an increase in production and corporate profits, the japanese economy will return to a self - sustained, though moderate, recovery path. according to the tankan survey released on october 1, corporate sentiment is generally improving, as is shown by the fact that the judgment of business conditions by