- on - year rate of change in the cpi equal to or below 0 percent and that the midpoints of most policy board members ’ understanding are around 1 percent. the agreed new expression was that each policy board member ’ s understanding “ falls in a positive range of 2 percent or lower, and the midpoints of most policy board members ’ ‘ understanding ’ are around 1 percent. ” i believe that dissemination of the bank ’ s outlook for economic activity and prices as well as its stance for the conduct of monetary policy, which i explained earlier, and its thinking on price stability will accordingly have a certain impact on the formation of interest rates in the financial markets. while keeping in mind its understanding of medium - to long - term price stability, the bank will continue to make wide - ranging assessments of various risk factors and strive to achieve the proper conduct of monetary policy. in doing so, based on lessons learnt from the bursting of the recent global credit bubble, i believe it is crucial to also pay attention to the possible accumulation of financial imbalances observed, for example, in asset prices and credit aggregates. iv. global financial crisis and japan ’ s economy next, i would like express my views on what kind of challenges japan ’ s economy will face in 2010 onward. in conducting economic policy, or, in the management of firms formulating future strategy, it is critical to consider the lessons japan should draw from the experience of the recent global financial crisis. in order to consider this, in my view, it is necessary to recognize the following two facts. the first fact is that, as has often been pointed out during the recent economic downturn, the plunge in economic activity in japan was the largest among the advanced economies. comparing internationally the trough levels of real gdp by taking as the benchmark the april – june quarter of 2008, which is before the global financial crisis broke out, real gdp in the united states, where the global financial crisis originated, declined by less than 4 percentage points, while that in japan decreased by more than 6 percentage points, which was the largest fall among the advanced economies. the second fact is that japan ’ s financial system remained relatively robust, compared with those of the united states and europe. for example, although various credit spreads in financial markets, such as the yield premium of corporate bonds against that of government bonds, did widen in japan as well, but compared to other countries the degree of widening was small. another example is bank lending. in the united states

masaaki shirakawa : provision of subordinated loans excerpt from an address by mr masaaki shirakawa, governor of the bank of japan, at a meeting with banks ’ top management, tokyo, 24 march 2009. * * * at the policy board meeting held on march 17, the bank of japan decided to explore a new framework for providing subordinated loans to banks. we have invited today representatives of banks which are subject to international capital standards to explain the background and the bank of japan ’ s view on the decision. the funding conditions for firms have deteriorated rapidly since last autumn due to the increased strains in global financial markets after the collapse of lehman brothers. while financial institutions have retained the financial intermediation function accordingly by increasing lending, the environment surrounding financial institutions has become increasingly severe due to the stock price plunge and the domestic economic downturn. fund raising in financial markets for funds over the fiscal year - end has mostly been completed, but the firms continue to face difficult funding conditions. while the cp market has started to restore its function, funding in the capital market has been limited to the firms with high ratings. looking ahead, while demand for funds to secure liquidity for the year - end and the fiscal year - end and demand for working capital due to the rise in raw material prices until last summer will decline, demand for funds to continue and to restructure business are expected to gain momentum. there might be a case in which the financial intermediation function will not be carried out smoothly from a macro perspective, if the strains in global financial markets increase and financial institutions become more conscious of possible capital constraints in the future. if financial institutions become more conscious of taking credit risk and all financial institutions take the same action simultaneously, the adverse feedback loop between the finance and the economy may intensify through financial institutions ’ restraining from accumulating their assets, leading to the fallacy of composition, although the action is judged as rational for each individual institution. as a result, that might weaken the capital strength of each financial institution. from that point of view, concern is for the influence of a possible decline in stock prices. while the amount of stocks currently held by financial institutions is significantly reduced compared with the early 2000s, it remains unchanged that they hold substantial market risk associated with stockholdings. although stock prices have recently somewhat rebounded, the financial systems in the u. s. and europe have remained unstable. it should be avoided that each financial institution's consciousness