and services are agricultural extension services and research and development. the modernisation of agriculture requires comprehensive, country wide, agricultural extension services. such a service will have to be funded predominantly with public resources. in addition, budget resources are needed to ensure that the rural infrastructure, such as rural feeder roads, is adequate to support commercial agriculture throughout the country. scarce budget resources should not be misallocated to the provision and subsidy of marketable inputs, especially those which benefit mainly larger farmers. the second issue i want to highlight is how we can develop a feasible strategy for the transformation of smallholder farming. chapter 2. 2 of the yearbook presents some interesting bis central bankers ’ speeches findings on projects run by the one acre fund which aim to support smallholders in east africa ; findings which are consistent with those of similar projects and of research in the region. the support which smallholder farmers need to enable them to increase their yields and raise their incomes is holistic. it includes technical advice and training in the use of improved agricultural techniques, the provision of improved seeds and fertilisers together with credit to purchase these inputs, with repayment of the credit aligned with the sale of farm output, and training and support for post harvest handling and storage. with such a holistic support package, substantial increases in farm output and incomes can be realised. the provision of finance alone will do little to help smallholder farmers overcome the constraints that they face in raising farm yields and marketing more of their output. unfortunately, only a small minority of the country ’ s more than 3 million smallholder farm households currently receive the type of holistic support provided by the one acre fund and similar projects, which addresses all of the constraints that they face. to modernise agriculture, this approach must be applied much more widely, so that all smallholders can benefit. both the public sector and non government organisations can contribute to this objective, but it is self evident that substantial public resources will be required to fund it, which emphasises the importance of properly prioritising public spending on agriculture. modernising agriculture is one of the most difficult challenges facing uganda, but given that more than 60 percent of the labour force relies on agriculture as their primary source of income, it is a challenge which is central to socio - economic development and poverty reduction. despite the country ’ s abundant natural resources, uganda ’ s agricultural performance has been poor ; real output growth has failed to even match population growth rates over the last two decades and labour productivity in

the financial system as well as monetary policy. i will then go on to discuss the policy challenges for japan as well as the implications of japan ’ s experience for europe today. i. developments in japan ’ s economy during the lost decades as is well known, japan ’ s economy has been mired in stagnation since the 1990s. on the other hand, what is less well known, especially abroad, is that the challenges that japan ’ s economy has faced during this prolonged stagnation have differed over time. put simply, until the early 2000s, the main challenge consisted of dealing with the instability of the financial system and deleveraging in the banking sector brought about by the collapse of the asset bubble, and of resolving the so - called “ three excesses ” in the corporate sector, consisting of excess debt, excess capacity, and excess employment. however, these problems were essentially resolved by the early 2000s and a more serious challenge since the second half of the 2000s has been the decline in japan ’ s growth potential and inflation expectations. the decline in both since the 1990s has been brought to the fore by the large decline in aggregate demand as a result of the global financial crisis. these two major challenges appeared in succession and it is mainly for this reason that japan ’ s economic stagnation has been so prolonged. bis central bankers ’ speeches the collapse of the asset bubble, financial system instability, deleveraging, and the “ three excesses ” in the 1990s, japan ’ s banking sector was riddled with a mountain of nonperforming loans resulting from the collapse of the 1980s bubble in real estate and stock prices. at the same time, japan ’ s corporate sector was suffering from the “ three excesses ” just mentioned – excess debt, capacity, and employment – owing to the expansion of businesses driven by overly optimistic growth expectations. in 1997 through 1998, these problems led to the successive failure of major financial institutions, significantly impairing the functioning of financial intermediation and causing a sudden credit crunch ( chart 1 ). the economy contracted severely and the year - on - year rate of change in the consumer price index ( cpi ) fell into negative territory, marking the beginning of japan ’ s prolonged, though moderate, deflation ( chart 2 ). the bank of japan responded to this financial crisis in japan during the 1990s by acting extensively as lender of last resort. 1 moreover, since the safety net was underdeveloped at that time, the bank of japan