by sector and by the size of firm, large manufacturers are faced with only limited balance - sheet adjustment pressures since they did not take on large debts during the “ bubble ” period. these large manufacturing firms saw an early recovery in profits following the collapse of the economic “ bubble ”, and in fact, have been investing significant amounts in plant and equipment since fiscal 1995. smaller firms, however, especially those in the nonmanufacturing sector, continue to suffer heavy balance - sheet adjustment pressures, having borrowed heavily from financial institutions during the “ bubble ” period to invest in real estate. the ratio of financial liabilities to assets at market value of smaller nonmanufacturing firms remains at a high level. as these firms have been most strongly affected by industrial restructuring, their profits as a whole have been slow to recover. as a result, their business fixed investment has shown little signs of improvement. yet, it cannot be said that low interest rates have proved ineffective to alleviate firms ’ balance - sheet problems. the only ways to alleviate the balance - sheet adjustment pressures is for firms to increase profits, and low interest rates have contributed broadly to improving firms ’ profits. with increased profits, firms can repay borrowings and thereby recover their net worth. also, a forecasted rise in a firm ’ s profits would facilitate the raising of capital by that firm. thus, increasing profits is most effective in improving the financial strength of a firm, and the repayment of debt is an important process in allowing a firm to prepare for future business activity. although in the current phase of economic recovery, low interest rates have not yet triggered any significant rise in business fixed investment in the smaller nonmanufacturing firms, these rates have steadily contributed to establishing the foundation of the recovery by helping to improve firms ’ financial strength. including such indirect effects, the bank believes that the low interest rates have in fact been firmly supporting the recovery of economic activity in the corporate sector. i would now like to go on to another often raised question about whether low interest rates are delaying the structural adjustment. it is true that there may be firms that are managing to survive despite a deteriorating business performance, owing to lower interest rates alleviating the burden of paying interest. my view, however, is that structural adjustment of the economy is achieved not just through natural selection of firms, where those with extremely poor business performance are weeded out. rather, i believe that it is achieved when the large number of firms with high growth potentials

in financial markets. recently, the situation has been changing rapidly, with investors'risk aversion abating somewhat due to expectations for progress in u. s. - china trade negotiations. let me also add that the bank does not have any preconception at this point regarding the outcome of its examination. before closing my speech, i would like to elaborate on the bank's basic thinking on the current conduct of monetary policy. there are three points. first, the bank's conduct of monetary policy will continue to be based on the current framework of " qqe with yield curve control, " which is highly sustainable and enables the bank to make flexible adjustments according to developments in economic activity and prices as well as financial conditions. possible measures for monetary easing include cutting the short - term policy interest rate, lowering the target level of 10 - year japanese government bond ( jgb ) yields, expanding asset purchases, and accelerating the expansion of the monetary base. combinations or applications of these various measures would also be an option. the bank will take appropriate measures depending on the situation, but in any event, the policy effects will be exerted basically through real interest rates and risk premia of asset prices. second, the bank considers that the conclusion reached in the comprehensive assessment released in september 2016, in which it assessed the policy effects and their transmission mechanism since the introduction of qqe, is still valid even in the present situation. for example, there is no change in our recognition regarding the impact on economic activity and prices of the term structure of interest rates, in that short - and medium - term interest rates have a larger impact than longer - term rates. on the other hand, the bank continues to take the view that an excessive decline in super - long - term interest rates could lower the rates of return such as on insurance and pension products, and this may exert a negative impact on economic activity through a deterioration in people's sentiment. and third, it is important to consider appropriate monetary policy measures while thoroughly weighing their benefits and costs. as i mentioned earlier, " qqe with yield curve control " has been exerting its effects firmly by stimulating a broad range of economic activities through the decline in real interest rates. that said, if the low interest rate environment is prolonged further, it will become necessary to pay closer attention to the costs of policy measures, including the impact on the functioning of financial intermediation and market functioning. thus, the bank recognizes that there