the san - in region was markedly sluggish compared with that of the national average. there were several reasons behind this. as the economic recovery at that time was led by external demand reflecting an expansion in the global economy, the region was not able to benefit much from the recovery. in addition, the effects of a cut in public investment during the period weighed heavily on the regional economy, in which the contribution of construction industry to the regional economy as a proportion was high. by contrast, the reason why business conditions in the san - in region have been improving in tandem with those nationwide during this recovery phase seems to be that the feature of this recovery – namely, that firm domestic demand has been inducing an improvement in economic activity in the non - manufacturing sector – has similarly occurred in the san - in region. in addition, the structure of the regional manufacturing sector – namely, a relatively high contribution to the regional economy as a proportion, compared with nationwide, of the food & beverages industry and lumber & wood products industry, which are highly domestic demand - dependent – has partly bolstered production in the manufacturing sector. against such a backdrop, due mainly to a moderate increase in production, a virtuous circle from income to spending has also started to operate in this region, mainly in the business sector. the bank will steadily pursue the qqe to ensure that this fledgling virtuous circle seen nationwide, inclusive of this region, will keep operating firmly in the future. in doing so, we believe it is critical to carefully examine economic activity and prices while firmly gauging developments in regional economies through the bank ’ s nationwide branch network, including the matsue branch. from this perspective, we would like to continue to seek your cooperation with respect to research and other activities of the matsue branch. this region has plenty of “ resources ” – namely, the ample resources of tourism and of agriculture, forestry, and fisheries, as well as a concentration in the manufacturing sector with advanced technologies. for shimane ’ s economy not to make the current recovery a transient one, it is critical to effectively utilize these resources to improve growth potential. in this regard, it is expected that, with the tourism industry and other regional industries working together, there will be further promotion of initiatives related to “ local production for local consumption ” in a broad sense – namely, to “ effectively make use of regional resources to spur production and expand regional consumption. ” with heartfelt hope for further development through these initiatives in

. real estate, so to say, had crossed the rubicon to emerge as a true investment asset. ( iv ) there was increasing anecdotal evidence of the inventory buildups of completed commercial as well as residential units. these were clearly signs of real estate having crossed the basic demand - supply equation to an investment asset. ( v ) there was a visible steep increase in land prices coming from auction results. large real estate companies could monetise the huge land banks on the back of the then booming stock market valuations with a simultaneous increase in bank lending for commercial real estate. 15. it was in the above backdrop that it was decided to make it costlier for banks to finance loans backed by real estate. it was felt that the usual sector - neutral monetary policy instruments would not be effective without posing significant costs to the economy generally. so while the monetary policy instruments were indeed used, the objective of this generalised, gradual tightening was quite different from the requisite stronger action in respect of bank exposures to sectors such as real estate. 16. it needs to be appreciated that in the indian context, the sharp rise in bank credit to the real estate was per se not a clear indicator of any asset price bubble given the inherent demand - supply dynamics in the economy and the genuine needs of an economy on a high growth path. there was a confluence of positive factors contributing to the development including a decline in inflation and stable inflationary expectations, resulting in decline in both nominal and real interest rates and availability of ample systemic liquidity, contributed no less by the rising tide of capital flows. concomitantly, there was a shift in funding by the corporates to non - bank sources, including external borrowing, which forced banks to look at diversifying their lending portfolios. this shift also helped in meeting the increasing genuine demands on the commercial real estate front, including the office space largely accounted for by the it boom and gradual expansion of organised retail to tier ii cities. 17. the objective, i must underline, was not to address the asset price bubble per se and not to curtail genuine credit needs of the economy but to prepare the banking sector to better manage the potential downsides related to selective sectors. in other words we adopted what is now called the “ expected ” as well as “ unexpected ” loss approaches. 18. what are the key inferences? first, that harmonisation of the monetary policy objectives and prudential objectives can give a more complete picture, which