toshihiko fukui : the japanese economy and asia speech by mr toshihiko fukui, governor of the bank of japan, at the asian affairs research council, tokyo, 26 september 2003. * * * it is a great pleasure to have this opportunity to address the asian affairs research council. today, after touching briefly on the current state of the japanese economy, i would like to share with you my thinking on the following topics : the deepening interdependence between japan and the rest of east asia under globalization ; the implications of this deepening interdependence ; and the improvement of financial and capital markets in the region as a key factor for east asia's economic growth. before i start, let me note that in today's remarks i focus on east asia, primarily the newly industrializing economies ( nies ), asean, and china, not asia in general, which would include india and other south asian countries. i. current state of the japanese economy in the bank of japan's semiannual economic outlook published in april 2003, the standard scenario was that as exports and production increased with the recovery of overseas economies, a selfsustaining recovery would gradually gain momentum in the second half of fiscal 2003. there were a number of uncertainties in this standard scenario. in fact, since spring 2003, the uncertainty about the economic outlook was amplified against the background of the war in iraq, severe acute respiratory syndrome ( sars ), volatile movements in the stock and foreign exchange markets, and persistent concern about financial system stability. as a result, an excessively pessimistic view on the economic outlook seemed to have spread toward the summer. such an excessively pessimistic view, however, has been receding since the summer. domestic demand has begun to show some signs of improvement. corporate profits continue to increase, and the ratio of current profits to sales for this fiscal year is likely to reach the highest level since the collapse of the bubble economy. judging from various survey results and in light of recent machinery orders, a leading indicator, the trend of recovery in business spending, by large manufacturing companies in particular, is anticipated to become more evident. despite continuing weakness in private consumption as shown in sales statistics, we have also begun to observe some favorable signs of change on the employment and income front. wages and employment figures, including those for part - time workers, have stopped falling. overseas economies appear to be showing signs of gradual

##ed investors ’ confidence but it is important to take a longer term view. the medium and long - term fundamentals of asian economies are strong, driven in no small part by china ’ s economic engine. i believe we will continue to see strong intra - regional trading volumes and wealth creation. as the asian economies grow, opportunities will arise in the capital markets for financing chinese companies ’ regionalisation, if not, globalisation efforts. singapore ’ s value proposition to chinese companies i believe the singapore exchange will be committed to maintain a robust market - oriented framework, which facilitates organisations that would like access to global capital for their business expansion plans. to date, the singapore exchange is one of the most international equity markets globally, boosting 38 % of international listings originated from a myriad of places such as the asean nations, hong kong, india, japan, south korea, north america, europe, and of course, china. singapore welcomes chinese companies to use singapore as a second home, to pursue regional business opportunities, to build international connections, as well as a test - bed for new, innovative ideas. at a point where east meets west, singapore today is home to 26, 000 international companies. of these, approximately 4, 200 mncs have regional activities in singapore to leverage on the singapore connectivity to service their clients from within the region. an increasing number of financial institutions are also using singapore as a regional hub to conduct their investment, fund management and private wealth management activities. singapore ’ s asset management industry has boomed and flourished, with assets under management surpassing s $ 900 billion. closing the establishment of the singapore exchange ’ s presence in beijing could not be more relevant, with the chinese market growing at a strong pace, and as chinese companies and markets become increasingly linked to the global community. the strong economic growth in china, singapore, as well as the asean region, gives us a window of opportunity to deepen and enhance market integration, strengthening asia ’ s competitive edge. the singapore exchange beijing representative office will, i am sure, play an important supporting role in bridging both china and singapore ’ s equity capital markets, and servicing the current and future listed chinese companies. it also demonstrates singapore ’ s long - term commitment to china, and i believe both markets will stand to gain in the long run. as a chinese saying goes, spring is the season we sow the seeds in the fields. as the singapore exchange sows its promising seeds in china, i very much hope that both