an extension of the proprietary trading arms of major banks. there is, in fact, a continuum running from commercial banks to investment banks to hedge funds, and it is hard to see why some of this should be within the supervisory net and some without. this alone would argue for some degree of supervision - for example, limits on gearing - rather than just disclosure. the case becomes stronger when we take into account the fact that the new york fed has had to organise a support package for a large hedge fund on the grounds that its failure would have had systemic consequences ( both nationally and internationally ). if, like banks, they are important enough to have systemic consequences, it is hard to see why they should escape supervision of some form or another. i want to conclude by sympathising with you as bank supervisors because of the inherent difficulty of the task you face. to some extent, the biggest challenge is to bring the countries furthest behind world best practice up to standard, and the core principles are a very useful step in this direction. but as recent events have reminded us, even in the countries with the most developed systems of bank supervision, we still continue to be surprised by the capacity of the best and the brightest to take risks the magnitude of which even they do not understand. this makes the task extremely hard for bank supervisors - you all have to run very hard just to keep up with developments in markets, and perhaps, the nature of risk itself.

background that the core consumer price index is still registering a small decline in recent months, while the corporate goods price index is rising moderately. under the present circumstances, the bank of japan has two tasks to achieve simultaneously : first, put japan ’ s economy on a sustainable growth track by maximizing the new dynamism in our economy ; and second, end deflation entirely. this is my new year message to those who are particularly interested in japan ’ s economy. as i said a few minutes ago, i have come to this city to commemorate the 100th anniversary of our new york office. i have learned that japan society will also mark its 100th anniversary in two years, meaning boj new york office and japan society are almost the same age. actually, the general manager of our new york office 98 years ago - mr. eijiro ono - was involved in organizing japan society. with this in mind, please allow me, for the moment, to talk about the early days of both japan society and the bank of japan ’ s new york office, that is, the early 20th century. japan society came into being in 1907 to promote friendly relations between our two nations. many prominent leaders from both sides of the pacific ocean contributed to the establishment of this important forum. this was almost 50 years after japan had opened its doors to the western world, when commodore perry arrived on japan ’ s shores to seek diplomatic relations between our countries. japan society was formed when our bilateral relationship was becoming closer, but sometimes tense due to the vagaries of international geopolitics in those days. as is often said, there was a bit of ambivalence in us - japan relations. on the positive side, the united states was most helpful in guiding japan towards successful modernization. we especially owed a great deal to us assistance in the process of industrialization. trade linkages between the two countries were growing stronger year by year. at the same time, the downside of our deepening ties was emerging around the turn of the century. a rift appeared in parallel with the palpable increase in japan ’ s military power in the pacific and japan ’ s surprising victory over russia in 1905. set against this backdrop, it was natural for the united states to see japan as a rising power in asia, with the potential to challenge us primacy in this geo - politically complex region. japan society was born out of this delicate international context. it was expected to perform a dual function - that is,