public funds. such recapitalization with the state budget should come with a commitment by the management of the recipient bank to take due responsibilities and its existing shareholders to incur possible losses. i believe these generic principles still hold true in today ’ s environment. but in hindsight, i have to admit that they are only part of more comprehensive strategies for dealing with a fullblown financial crisis like the one we are witnessing. we need to ask ourselves why such comprehensive policies were not implemented in a timely manner. financial crises : similarities between japan and the us with these things in mind, i would next like to point out remarkable similarities between japan ’ s crisis experience from the 1990s to early this century and what the us has undergone in the past several years. these commonalities fall into five categories. first, financial crises in both countries were preceded by high economic growth and low inflation for an extended period of time. japan ’ s economic ascent in the 1980s looked unstoppable. the continued strength in the us economy in the last decade was emblematic of the so - called great moderation. in japan ’ s case, people strengthened confidence in the late 1980s after riding out the oil crises. japan became the world largest creditor country by then with an increasing presence in the global economy. a sharp and sustained rise in land prices in those days was seen as a vindication of japan ’ s stronger economic fundamentals. at the end of 1989, japan ’ s stock market capitalization accounted for nearly half the world ’ s total and the land values of the tokyo metropolitan area alone were said to equal those of the entire us. what an irrational frenzy it was. second, both japan and the us took time to recognize the collapse of the economic bubbles and to appreciate its substantive implications for the broader economy. in fact, japan ’ s equity prices peaked at the end of 1989 and the nation - wide land price index in september 1991. it was in july 1991 that the bank of japan started the easing cycle in its interest rate policy. even at that time, though, many people cautioned that lower interest rates could lead to a resurgence of asset bubbles. in the us, residential investment growth turned negative in the first quarter of 2006 and the house prices peaked in may 2006. but it was in september 2007 that the federal reserve began to slash policy rates. some attributed the irrational rise in international commodity prices then to the rate cuts by the federal reserve. in the early stage of the bubble bursting

bank of japan ’ s february report of recent economic and financial developments1 bank of japan, 12 february 2002. * the bank ’ s view * * japan ’ s economy continues to deteriorate. with regard to final demand, net exports ( real exports minus real imports ) tend to decrease at a slower pace since the decline in exports is moderating. meanwhile, business fixed investment continues to decrease and private consumption is also weakening. moreover, housing investment remains sluggish and public investment is on a downward trend. amid this weak final demand, inventory adjustment is progressing in many industries including electronic parts as a result of the large production cutbacks to date. reflecting this development, the rate of decline in industrial production is contracting. however, firms maintain their stance on reducing personnel expenses under strong excessiveness in employment. hence, the severity of employment and income conditions of households is rather intensifying, with unemployment continuing to rise and winter bonuses having decreased distinctly. turning to the outlook, with regard to exporting conditions, the synchronized inventory adjustment in it - related goods worldwide is coming to an end. as a consequence, there seem to be signs that exports and production of the east asian economies have stopped declining. moreover, the yen has been depreciating recently. under these conditions, exports are expected to stop decreasing and to turn up toward the middle of this year. however, exports will recover only modestly, while the recovery in overseas economies is weak and final demand for it - related goods worldwide remains stagnant for the time being. as regards the u. s. economy, there are increasing number of indicators suggesting that the economy will hit the bottom, but there still remain many uncertain factors. therefore, including this aspect, developments in overseas economies continue to require close scrutiny. meanwhile, with respect to domestic demand, business fixed investment is expected to follow a downtrend reflecting the fall in corporate profits. private consumption is also likely to be weak mainly due to worsening employment and income conditions. thus, while domestic private demand generally weakens, government spending is basically projected to follow a downward trend. consequently, it may take quite a while for economic activity as a whole to stop declining, even though the decrease in industrial production may move toward cessation against the background of the improvement in exporting conditions and progress in inventory adjustment. overall, japan ’ s economy will continue to deteriorate, but the pace is expected to moderate gradually with the downward pressure from exports and inventories aba