monetary policy effective. public confidence in economic policy is hard to gain in the short term. first of all, the authorities should faithfully explain to the public the expected effects and risks of each policy measure to be taken. then, people will monitor the effects achieved and how the risks turn out, and verify whether they have been in line with the authorities'explanation. public confidence can be gained only through continuous efforts to fulfil the requirement to be accountable. thus, the authorities should be careful not to introduce measures in a piecemeal manner based on the shortsighted idea that " it is better to do something than nothing. " when the new framework of monetary easing was adopted in march 2001, i believed that the bank should continue to faithfully fulfil its duty of accountability. in other words, the bank should explain the necessity of entering uncharted territory by taking unprecedented measures given the severe economic outlook, together with the fact that the effects were uncertain to some extent, and try to gain the public's understanding. monetary policy cannot directly generate demand nor can it be a substitute for measures to advance structural reforms. also, its stimulative effects on the economy will be very limited in the quantitative sense in the situation where interest rates, both on short - and long - term instruments, are at their lowest possible levels and cannot decline further. when the bank decided the new frameworks in march 2001, i believed that the bank should continue to make best efforts on its part, and should continue to call strongly for the structural reforms that are indispensable and also one of the prerequisites to make monetary easing effective. in other words, the bank decided to take such drastic and unprecedented easing measures ahead of structural reforms, in the hope that other measures would follow to advance structural reforms significantly. the bank of japan had already taken easing measures twice in february 2001. since march 2001, the bank has decided on as many as four further easing measures, under the new framework of monetary easing. in view of further deterioration of the economy and financial conditions, we decided, in december 2001, to expand the balance of current accounts at the bank and utilize new financial instruments such as asset - backed securities as tools for the bank's market operations and as eligible collateral. c. experiences in the course of the unprecedented monetary easing as the bank has continued its unprecedented monetary easing, it has accumulated experience with regard to its effects. a series of monetary easing measures since 2001 has been

stocks. now, if we take a look at stock prices by industry, we see a clear trend. while stock prices of firms in electrical appliances and transportation equipment industries are rising, stock prices of those in construction, real estate, and banking industries are falling. the trend shows that market participants are taking a harsher view of japan's financial system. three factors seem to determine the weakness of bank stocks. first, the banking sector is suffering from the npl problem. second, there has been a series of failures of borrower firms and there are concerns that such failures might continue. it should also be noted that more time is required for restructuring of borrower firms amid business reorganization in the banking industries. and third, unwinding of cross - shareholding is progressing due to introduction of mark - to - market accounting. the biggest concern is the npl problem of japanese financial institutions, which places a heavy burden on japan's economy overall. japanese financial institutions have been making efforts in various ways to resolve this problem. in the past decade, many have disposed of an amount of npls exceeding their annual operating profits each year. however, the amount outstanding of npls has not declined as the amount of new npls has been more than that of ones disposed of. for some time after the bursting of the " bubble, " a large majority of npls were loans extended to nonbanks and firms in the real estate and construction industries. recently, however, npls are increasingly emerging from loans extended to firms in service industries such as retail, as well as some in manufacturing industries. it seems that new npls are emerging in the industries challenged by structural adjustments. the emergence of npls implies progress in structural adjustments. in this regard, not only financial institutions, the lenders, but also borrower firms are required to implement major reforms of their business management for the resolution of the npl problem. b. financial institutions'measures to address the npl problem the npl problem, which is related to both financial institutions and borrowers, should be addressed primarily by the former. in fact, large banks announced the major steps they would take to achieve the projected results of disposal of npls for fiscal 2001 in autumn 2001 when announcing their financial results for the first half of fiscal 2001. the major steps include ( 1 ) larger disposal of npls than planned for before the start of fiscal 2001, further cost - cutting, ( 3 ) review of their lending conditions, especially interest rates