Although global financial markets have been volatile since the turn of the year, I believe there is no need to be too pessimistic as the fundamentals of Japan’s economy have been firm. With regard to Japan’s recent economic activity, domestic demand has followed an uptrend, with a virtuous cycle from income to spending being maintained in both the household and corporate sectors.
Second, it will not surprise you when I say that there are dangers in placing too much reliance on banking supervision, or in pursuing regulation with excessive vigour. Banking supervision and some regulation of risk-taking are important ingredients in the policy mix, but they are not sufficient in themselves to promote financial system stability.