corporate financing instruments may be employed as a central bank. since outright purchases of cp essentially undertake the credit risks of individual firms, they constitute an exceptional step taken by the central bank in light of the bank's fundamental position that the main purpose of central bank operations is to provide liquidity. looking back on the history of central banks in leading countries, the only cases where central banks have purchased corporate financing instruments outright are the bank of japan's purchasing of abcp, abss, and corporate stocks in the first half of this decade and the federal reserve's purchasing of cp mentioned earlier. nevertheless, it becomes difficult to draw a clear line between measures to provide liquidity and those that take on credit risk in crisis situations. central banks are expected, based on the current economic and financial situation, to fully recognize the importance of their responsibilities in ensuring the stability of prices and of the financial system, and to make judgments on specific and practical matters in view of appropriately assuming these responsibilities. the bank, in providing support to corporate financing, will examine the scope of undertakings that are necessary and appropriate for a central bank, as well as appropriate ways, including the involvement of the government, to ensure the bank's financial health and confidence in the currency. closing remarks today, i have discussed the conditions of global financial markets and the world economy, the economic situation in japan, and the conduct of monetary policy, and also presented some outlook for the coming year. currently, the world economy is in a severe situation never experienced for many years that i may venture to call a crisis situation. the immediate task is " fire - fighting " against this crisis, and we are doing our utmost. at the same time, however, looking back on the developments in the world economy for the past two decades or so, the phenomenon of the rise and bursting of bubbles seems to have increased in frequency and become visible across a wider range of economies. considering the background to these experiences, it seems necessary to remember that responding to crises with excessive policy actions may lead to larger crises later on. in the current crisis, many issues have surfaced in central banking circles in areas such as the basic ideas behind the conduct of monetary policy and the regulation and supervision of financial institutions. i am sure that various issues are also being reconsidered in the field of corporate management, given the progress of globalization in economic and financial activities. the bank, through exchanging views with you, will do its utmost as a central bank to facilitate the

masaaki shirakawa : global financial crisis and policy responses by the bank of japan speech by mr masaaki shirakawa, governor of the bank of japan, to the board of councillors of nippon keidanren ( japan business federation ), tokyo, 22 december 2008. * * * introduction i am honored to have this opportunity to speak before business leaders in japan here today. time flies, and it is only about a week before the turn of the year. looking back, this year has been a particularly severe one both for overseas economies and japan's economy. the slowdown in the world economy gradually became pronounced, reflecting the turmoil in global financial markets since the summer of 2007, and the situation changed significantly especially since the bankruptcy filing of lehman brothers in mid - september. many in corporate management have expressed the view that the sharp downturn in overseas economies and japan's economy over the past several months is one they have never experienced before, and the severity of the situation is clearly shown in the recent economic data. today, i would like to take this opportunity to review this year's developments in global financial markets, the world economy, and japan's economy, talk about the background to the current global financial crisis, and lastly explain the bank of japan's thinking on the conduct of monetary policy. i. global financial markets and the world economy i would like to start with developments in global financial markets and the world economy. as you know, the turmoil in global financial markets since the summer of 2007 was caused by declines in the prices of securitized products backed by subprime mortgages. it is not appropriate to limit our understanding of this trouble as " the subprime mortgage problem " or interpret it as " the financial sector's fault ". in essence, it was caused by the bursting of a global credit bubble – a phenomenon generated by a combination of the rise in asset prices and the increase in credit and leverage. during the period of the credit bubble, firms in general enjoyed the fruits of high growth in the world economy. the rise and bursting of the credit bubble was observed to the greatest degree in the u. s. economy, but other economies also experienced similar phenomena, albeit with some differences in degree. the turmoil in financial markets surfaced as " liquidity constraints " when conduits and aggregators of securitized products and financial institutions faced difficulties in raising funds. losses incurred by financial institutions eventually expanded due to declines in the prices of