Opening Remarks
by Haruhiko Kuroda,
Governor of the Bank of Japan

I. Introduction
It is my great pleasure to welcome you all to the 2022 BOJ-IMES Conference. Onbehalf of the conference organizers, I would like to thank you all for your participation.
This is the 27th conference since its start in 1983. Due to the continuing eﬀects ofCOVID-19, the conference is being held online, as last year. The previous conference
was very fruitful with lively and wide-ranging discussions on the theme of “Adapting tothe New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic.”Since then, however, the environment surrounding central banks has changed dramatically. Given these developments, the themes for discussion appear to have expanded
rapidly. That is why I think this is the ideal opportunity for central banks, international
institutions, and academia to gather and exchange opinions.
Against this background, the theme of this year’s conference is “New Dimensionsand Frontiers in Central Banking.” Now I would like to provide an overview of thetheme, focusing on the new dimensions faced by central banks and the frontiers theyare developing.

II. New Dimensions in Central Banking
First of all, I would like to point out two challenges currently facing central banks.
A Surge in Inflation
The first challenge is a global surge in inflation. For most central bankers and researchers, this is not something they could have imagined at the emergence of COVID19. The unique feature of inflation this time is that both supply and demand inflationary
factors have occurred at the same time. On the supply side, constraints on production
capacity have given rise to inflationary pressure. These constraints include disruptions
to the supply of raw materials, a shortage of semiconductors, and labor shortages. On
the demand side, as economic activity has recovered globally since last year, solid demand from households has materialized. A shift in demand from services to goods has
occurred amid the continued pandemic. These two factors have brought about upward
inflationary pressure, especially on the price of goods including the price of commodities.
That said, when it comes to these supply and demand eﬀects, there are both similarities and diﬀerences between countries. For example, in Japan, household pent-updemand has been limited and the recovery of aggregate demand has been slower thanin Europe and the United States. On the supply side, the constraints may not be as
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severe as in the United States. While shortages of intermediate inputs have had some
impact, labor supply has room to expand thanks to so-called labor hoarding during thepandemic. Diﬀerences in labor supply stance have also resulted in diﬀerences in wage
growth between countries. In Japan, wages have risen, but the rate of increase has remained moderate. Also, the recent surge in commodity prices due to supply factors
puts greater downward pressure on the economies of commodity-importing countries
through a decline in household real income and corporate profits. In this situation, attention will be focused on how firms pass increasing costs on to prices and how they
determine the level of price increases that households are willing to accept.
Given these diﬀerences in the supply and demand eﬀects, the appropriate monetary policy response will also diﬀer between countries. A common challenge for eachcountry is to determine the magnitude and persistence of the inflationary pressure. In
doing so, it will be important to capture the relationship between three prices, namely,
the price of goods and services, wages, and commodity prices.
A Surge in Geopolitical Risk
Another challenge facing central banks is the surge in geopolitical risk triggered by
the Russian invasion of Ukraine. This has induced a further increase in commodity
prices. And it has increased inflation worldwide. In addition, uncertainties over geopolitical risk are extremely high. These uncertainties could put downward pressure on
the global economy by shrinking trade and damaging confidence. In addition to thereal economy, close attention has to be paid to financial market sentiment, the global
financial system, and cybersecurity. Furthermore, if views on geopolitical risk wereto change permanently, this could have a longer-term impact on the global economy
through structural changes in trade and capital flows. Recognizing how extremely uncertain and fast moving the current situation is, central banks are required to implement
the appropriate policy measures.

III. Frontiers in Central Banking
In addition to these challenges, new challenges have emerged in the frontiers that central banks should develop. I would like to point out three areas.
Structural Change in the Economy
The first frontier is the acceleration of structural changes in the economy amid theprolonged pandemic. The digitalization and automation of society and the economy
were in progress even before the pandemic, and having been accelerated by the pandemic, they have expanded and deepened rapidly. Along with this, a restructuring ofsupply chains has been observed. Also, since the eﬀects of the pandemic were regressive, income inequality appears to have increased further, above its already increasing
trend in some advanced economies. The fiscal burden for dealing with this issue hasalso increased. From an economic perspective, these structural changes may aﬀect thepotential growth rate, the natural interest rate, and the Phillips curve. The structuralchanges may have implications for the eﬀectiveness of monetary policy and the appro-22 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2022

Opening Remarks

priate responses. Central banks should therefore pay close attention to the changing
economic structure and its potential impact on prices and the real economy.
Climate Change Responses
The second frontier is climate change response, which has become a new domain for
central banks. This is an area in which considerable eﬀort has been made since thelast conference. Stimulating and wide-ranging discussions have taken place at international forums such as the Network of Central Banks and Supervisors for Greening theFinancial System (NGFS). The Bank of Japan published its comprehensive strategy onclimate change in July 2021. The Bank also introduced its Climate Response Financing Operations and has been actively engaged in a wide range of initiatives, including
research.
In principle, it is the governments’ industrial and fiscal policies that play the primary role in addressing climate change issues. However, it is also important to consider
how to make use of market mechanisms to ensure the eﬀectiveness of these policies.
One example is the emissions trading systems introduced in the EU and elsewhere.
In Japan, national-level plans have been launched. The role of markets in evaluating
firms’ eﬀorts to tackle climate change is also important. In this way, the market function can promote changes in firms’ behavior. For example, the Bank of Japan’s Climate
Response Financing Operations make use of financial institutions’ expertise in assessing firms in the area of climate change. The financing operations also require financial
institutions to disclose relevant information as a condition for supplying funds. Thesemeasures have been designed to help use market discipline in an eﬀective way. The roleof central banks may be considered from the perspective of market initiatives, such as
promoting the development of financial markets related to climate change.
The Transformation of the Monetary System
The third frontier is the transformation of the monetary system, induced by digitalization. Many central banks are working on the issues surrounding central bank digitalcurrency (CBDC). The Bank of Japan has been testing the technical feasibility of thefunctions and features required for CBDC. Specifically, in April this year, the Bankof Japan moved from Proof of Concept Phase 1, aimed at testing the basic functionsof CBDC, to Proof of Concept Phase 2, in which additional functions are added andtested.
However, the broader issue is how to build a monetary system in the digital age.
We have seen the emergence of private digital currencies and stablecoins in addition
to the increasing interest in CBDC. There is no doubt that we have entered a periodof transformation for the monetary system. Considering the future of the monetarysystem can lead to exploring the potential for growth. One area with the potential tocreate new demand is combining the monetary system with the information system that
supports business. In addition, given the cross-border role of money, the future of themonetary system should be considered globally as well as domestically. Central banks
are required to engage in designing and building the new monetary system globally
while examining the possible eﬀects of future changes to money on monetary policy
and financial stability.

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IV. Conclusion
Let me wrap up. Since last May, the situation facing central banks has changed rapidly
and the eﬀorts in the frontiers of central banking have advanced significantly. Thisyear’s conference is being held for three days to provide enough time for discussion.
The conference has been organized with a view to deepening our understanding of thewide range of challenges I have outlined.
In the Mayekawa Lecture, I am looking forward to fresh insights, courtesy of Professor Kenneth Rogoﬀ, regarding the new dimensions and frontiers in central banking.
In the keynote speech, Professor Carl Walsh will be discussing the mechanism of thecurrent surge in inflation and its implications for monetary policy. Also, the presentation sessions feature cutting-edge papers covering a wide range of topics in the frontiers of monetary policy, such as economic inequality, climate change, digital currencies, and automation of the economy, all of which are crucial topics for current central
banking. Building on these discussions, we can look forward to lively exchanges withexperts from central banks and international institutions in the policy panel on the final
day of the conference.
In a rapidly changing world filled with uncertainty, a common challenge for central
banks is how to adapt to this changing environment. To overcome these challenges,
central banks need to be nimble, agile, and smart. I am sure that the insights gained
from the contributions to this conference will ensure that central banks are all fit andready to face those challenges.
Thank you.

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