masaru hayami : the impact of innovation in information and communications technology on financial systems speech by mr masaru hayami, governor of the bank of japan, held at kisaragi - kai, tokyo, on 5 october 2000. * * * it is an honor to be invited and given this opportunity to speak at kisaragi - kai. today, i would like to share with you our thoughts on changes in japan ’ s financial system against the backdrop of the rapid pace of innovation in information and communications technology, and how, under such circumstances, we should continue improving both the stability and efficiency of the financial system. the recent rapid evolution of information and communications technology, which is generally called the “ it revolution ”, has been exerting a profound impact on economies and finance as a whole. in the united states where such technological innovation has been one of the driving forces behind the longest period of economic expansion in its history, there are views that a new economy that is totally different from the old economy has been born. some even claim it is comparable to the industrial revolution of the 19th century. though it will be a long time before economic historians can make an objective assessment of innovation in information and communications technology, which is still under way, there is no doubt that it has had a profound impact on economies and finance as a whole. indeed, i don ’ t think i need tell you that technological innovation has brought about the speedy processing and transmission of information enabling a substantial reduction in costs, wider networking, and globalization on an unprecedented scale and scope. moreover, it has affected a wide range of industries, having a particularly dramatic impact on the financial services industry. man created an instrument called “ money ”, which is a unit of account, a means of exchange and a store of value, for the smooth execution of economic activity. the financial services industry is closely related to this instrument we call money, and its core business is based on information processing and networking. therefore, the financial services industry has been a major user of information and communications technology, and, significantly, it is an industry that can easily take advantage of technological innovation. as we all know, computers and exclusive communications networks have greatly contributed to improving the efficiency and safety of business, for example, in retail deposit taking where an enormous amount of information must be processed and recorded as well as in fund transfers and domestic and foreign exchange where extensive networks are required. furthermore, the recent rapid growth of derivatives and securitization has been

0. 1 percent, with the median at minus 0. 2 percent, and for fiscal 2005 as ranging between minus 0. 1 and plus 0. 2 percent, with the median at plus 0. 1 percent. i will return to this subject in more detail later in my remarks. forecasts are always subject to qualification. factors that may cause either positive or negative deviations from the forecasts in the outlook report published in october include ( 1 ) developments in overseas economies, including movements in crude oil prices and demand for it - related products ; ( 2 ) developments in domestic private demand ; ( 3 ) developments in domestic financial and foreign exchange markets ; and ( 4 ) issues relating to the health of the financial system and the disposal of nonperforming loans. details on these factors are provided in the outlook report. here, i will touch upon two issues with an important bearing on the direction of both overseas and domestic economies, that is, crude oil prices and demand for it - related goods. crude oil prices are hovering around the highest level ever recorded : west texas intermediate ( wti ) crude oil prices have been around 50 u. s. dollars per barrel. while prices for light crude oil ( which has a larger gasoline component ) have surged, those for heavy crude oil ( with a smaller gasoline component ) have remained at a relatively low level, with the unprecedented large price difference continuing between the two. thanks to its large refining capacity for gasoline, japan's imports of crude oil are concentrated among medium and heavy crude oil, so that the rise in the overall price of crude oil imported to japan is relatively small. in addition, considering factors such as the consumption of oil per unit of real gdp, which is about 70 percent of that of the united states, as well as the highly efficient utilization of energy resources in japan, the direct impact of crude oil prices is not expected to be particularly large for the time being. more worrisome is the indirect impact from overseas economies. if crude oil prices remain at high levels, major energy - consuming nations will see their household spending power adjusted for inflation come under pressure, considerably affecting economic activity. some observers claim that the rise in crude oil prices will cause a decline in the pace of expansion of the global economy, and as a result push down crude oil prices. however, there is considerable uncertainty as to when this endogenous mechanism will come into play. meanwhile, the fact is that, given the limited supply - side potential vis - a