term growth expectations against the backdrop of domestic and overseas economic growth declining to a level lower than that realized before the current recession. as you can see, there are various risks to the outlook for the japanese economy both on the upside and downside. on balance, the bank's present assessment is that risks to the economy still remain greatly on the downside. in either case, the bank will continue to carefully examine economic developments, while paying due attention to various risks surrounding the economy. iii. developments in the financial environment in parallel with the pickup in the japanese economy that i have just explained, the financial environment, with some lingering severity, has increasingly been showing signs of improvement. i would now like to explain in some detail developments in japan's financial environment since last autumn. in japan, the acute pain caused by the financial crisis emerged markedly last autumn in securities markets such as the corporate bond and cp markets, in which large firms, banks, and institutional investors are major participants. after the collapse of lehman brothers, japan's stock prices fell sharply and defaults of corporate bonds started to be observed. in these circumstances, the excessive anxiety of market participants prevailed in the corporate bond and cp markets, and this made investors excessively cautious about taking on issuers'credit risk. in addition, market functioning deteriorated significantly : transactions decreased sharply, and the average market rates did not reflect the market fundamentals but rather were influenced strongly by specific circumstances of individual transactions. as a result, conditions for corporate bonds and cp issuance deteriorated significantly. in the corporate bond market, the credit spread ( the yield differential between corporate bonds and government bonds ) on bbb - rated corporate bonds was at around 1 percent in summer 2008 but expanded rapidly thereafter, and exceeded 4 percent around the end of fiscal 2008. in fact, almost no issuance of bbb - rated bonds was observed at the time. even the spread on a - rated corporate bonds, which have been recognized as medium - rated bonds, expanded and exceeded 1. 5 percent around the end of fiscal 2008, although it was at about 0. 7 - 0. 8 percent in summer 2008. there was almost no issuance of such bonds from october through november 2008. issuance rates on cp also rose substantially. in november, cp issuance rates ( 3 - month ) exceeded banks'lending rates ( in terms of the average contracted interest rates on new short - term loans ) for the first time, although this entirely unprecedented phenomenon was observed only in

hit a multi - year high at the beginning of november. this rise in yields receded again in response to another dip in risk sentiment at the beginning of december. most recently, the yield on 10 - year us treasuries stood at almost 2. 9 % – close to the level recorded at the end of june. in europe, on the other hand, yields have been more stable. yield differentials between us and european government bonds thus also reached a multi - year high in november. since then, differentials have narrowed again somewhat due to a more pronounced decline in the us. the yield on ten - year confederation bonds last stood at – 0. 15 %, virtually unchanged versus midyear. let me now turn to the foreign exchange markets. compared to the turbulent developments on the equity markets, the currencies of the major advanced economies traded within fairly narrow ranges in the second half of the year. on a trade - weighted basis, the us dollar has gained 2. 5 % since mid - year thanks to a buoyant economy and rising interest rates. the tradeweighted euro, however, lost almost 1 % over the same period due to weaker economic momentum in the euro area recently and uncertainty linked to italy ’ s budget issues. the swiss franc remains vulnerable to changes in risk sentiment on the international financial markets. it strengthened moderately, by 2. 5 %, in the second half of the year ( cf. chart 4 ). this appreciation is primarily due to the period between august and mid - september, when concerns about emerging markets – and possible consequences for europe ’ s finance sector – caused a renewed spike in risk premia on european financial securities. from mid - september, the swiss franc depreciated again slightly, particularly against the us dollar which has become more attractive to investors due to the greater interest rate advantage. furthermore, emerging market currencies stabilised noticeably. overall, developments on the foreign exchange markets show that the situation remains fragile and that the swiss franc continues to serve as a safe haven in times of heightened uncertainty. thomas jordan also referred to this phenomenon in his remarks on exchange rates. replacing libor with saron i would now like to update you on the work that is under way to replace libor with saron as a reference interest rate. since the uk financial conduct authority announced nearly a year ago that it would not guarantee the continuation of libor beyond 2021, this topic has attracted significant public interest. alternative reference interest rates