bank of japan presents its quarterly economic outlook for winter 1997 bank of japan, quarterly bulletin, february 1997 ( advance summary ). 1. a moderate economic recovery continues in japan as private demand shows increasing firmness. among final demand items, public - sector investment has begun to decrease while net exports have started to rise. housing investment has remained at a high level and business fixed investment is also increasing steadily. while the increase in personal consumption has been moderate on the whole, passenger car sales have recently increased at a faster pace. meanwhile, inventories are generally at appropriate levels. in these circumstances, industrial production is increasing and recently, in particular, the pace of growth has accelerated to some extent. labor market conditions have continued to improve moderately. prices have stopped declining on the whole. domestic wholesale prices ( adjusted for seasonal electricity rates ) have almost stopped declining, reflecting the depreciation of the yen and the rise in oil prices to date as well as the moderate improvement in domestic supply and demand conditions, particularly in construction goods. the year - to - year decline in corporate service prices is narrowing gradually. consumer prices ( nationwide, excluding perishables ) are marginally above the previous year ’ s level. land prices continue to weaken on the whole, but there are some signs of improvement in the supply and demand conditions. on the balance of payments, the real trade surplus has recently started to increase and the nominal current account surplus is also rising moderately. 2. in the financial markets, the overnight call rate ( uncollateralized ) has stayed slightly below the official discount rate, and the 3 - month cd rate has remained at 0. 50 - 0. 55 per cent since autumn 1996. the long - term government bond yield has been declining since july 1996, and it marked a record low of 2. 3 - 2. 4 per cent in early december and has recently remained at around 2. 4 per cent. stock prices have declined substantially since the end of 1996. the yen has been depreciating since the end of 1996, particularly against the u. s. dollar. meanwhile, growth in lending by private financial institutions has continued to be slow, owing both to weak corporate demand for new funds and to an increase in capital market financing. monetary aggregates in terms of m2 + cds average outstanding, however, have continued to grow at over 3. 0 per cent. 3. to gauge future developments of japan ’ s economy in the context of individual components of final demand, public -

the economy. there are two things i can say in response. first, i do not see that regulation keeps banks from their traditional business of financing the economy. loans to private households and smaller companies are treated very favourably when it comes to capital requirements. think of the support factor in article 501 of the capital requirements regulation. this factor was introduced to facilitate the financing of small and medium - sized enterprises. i also do not see that regulation keeps banks from developing new business models – those, for instance, that follow from digitalisation. second, critics neglect the benefits of strong rules. strong rules prevent crises, and crises hurt the economy. 1 / 2 bis central bankers'speeches at the end of the day, it is only well - managed and well - capitalised banks that are able to finance the economy – even when the going gets tough. they can finance the economy throughout the entire business cycle. poorly capitalised and poorly managed banks, on the other hand, cannot support the economy during downturns – they get into difficulty themselves. strong rules therefore help the economy in a sustainable way. and even if we only consider the banks, we still see benefits. stronger rules increase trust. and as a result of the crisis, a great deal of trust was lost. and that ’ s a problem for banks because trust is a crucial asset for them. trust has a positive impact on funding costs for banks, and it determines how attractive a bank is for business partners who think long - term. strong rules thus help the banks, too. altogether, i am convinced that the benefits of regulation are greater than the costs. but rules can only take us so far. ultimately, it is people who make good or bad decisions. and this is where banks ’ risk managers come into play. they are the first line of defence against excessive risks. thank you for your attention. 2 / 2 bis central bankers'speeches