, private banks appear to be more cautious in extending loans to firms with higher credit risks while they continue to be more active in extending loans to blue - chip companies. the lending attitudes of financial institutions as perceived by small firms are becoming more cautious. in corporate bonds and cp markets, the fund - raising conditions for firms continue to be generally favorable, although the issuing environment for firms with low credit ratings is deteriorating slightly. credit demand in the private sector is declining faster mainly because firms are decreasing their business fixed investment while continuously reducing their debts. amid these developments, private banks ’ lending continues to decline at about 2 percent on a yearon - year basis. as for the amount outstanding of corporate bonds issued, the year - on - year growth rate is slowing due to the decrease in the issuance of corporate bonds with low credit ratings. meanwhile, the amount outstanding of cp issued continues to be at a high level, significantly exceeding that of the previous year, due to the generally favorable environment for issuing cp. the growth rate of money stock ( m2 + cds ) in october remained relatively high while the rate declined slightly from the previous month. funding costs for firms continue to be at extremely low levels on the whole. overall, the recent financial environment remains extremely easy in terms of money market conditions and interest rate levels. however, as private banks and investors are becoming slightly cautious in taking credit risks, the fund - raising conditions of firms with higher credit risks and small firms are apparently becoming severe. hence, the developments in the behavior of financial institutions and corporate financing need closer monitoring.

rate that i just mentioned and transform the economy into one that people believe will achieve growth in the future. to address the first factor, the decline in the labor force, the very least is to make consistent efforts to raise the labor force participation rate of women and the elderly. to address the second factor underlying the decline in the growth rate, that is, the decline in productivity growth, a key point is how individual firms can tap new demand. the term “ rise in productivity ” carries the connotation of producing existing products at lower costs. of course, this aspect is important. however, when there are dynamic changes in customer needs, raising productivity also means tapping new demand and increasing sales by establishing a supply system that matches such new demand. due to economic globalization, the range of potential customers has rapidly increased also for japanese firms. the explosive spread of personal computers and the internet has rapidly reduced the distance between firms and customers, and, in this respect, the gap between large and small firms has shrunk. the low birth rate and population aging in advanced economies and major structural changes such as the shift to a low carbon economy bring with them new customer needs. while it is a difficult task to discover potential demand that cannot be easily discerned, transforming such potential demand into actual demand and linking this with a rise in productivity is something that firms should perceive as a challenge and that would provide one approach to innovation, as i will explain later. japan ’ s economic strengths unfortunately, through what mechanisms innovation takes place nobody can say for certain. however, innovation is not likely to take place unless there is sufficient energy to overcome the kind of pessimism many currently feel in japan with regard to the future. of course, when growth is actually sluggish and the reason for this is a decline in productivity growth, such pessimism is not entirely unfounded. on the other hand, however, i feel that there is also a tendency for the strength of japan ’ s economy to be underestimated and the pessimism to be overdone. with regard to well - founded pessimism, it is necessary to accurately recognize the essence of the underlying issues and squarely address them. at the same time, we cannot allow ourselves the luxury of indulging in groundless pessimism. it is important to calmly recognize the relative strengths of our country and utilize them to the maximum extent possible. earlier, i identified trends in the labor force and productivity growth as factors responsible