Harvard Law School Program on International Financial Systems
International House of Japan

Symposium on Building the
Financial System of the 21st Century:
An Agenda for Japan and the United States
Washington, DC | October 19-21, 2018

Final Report

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2018 Symposium on Building the Financial System of the 21stCentury: An Agenda for Japan and the United States
The twenty-first Japan-U.S. Symposium on Building the Financial System of the 21st Century
was held in Washington, DC, from October 19-21, 2018. Sessions addressed the impact onfinancial institutions of “Trumponomics” and financial deregulation, financial technology andbanking, and the causes and consequences of persistently low long-term interest rates in the mostdeveloped economies.

第 21 回 日米国際金融シンポジウム「21 世紀金融システムの構築：日本と米国にとっての課題」
第 21 回日米国際金融シンポジウム「21 世紀金融システムの構築」が、2018 年 10 月 19
～21 日に米国ワシントンＤ.Ｃ.にて開催され、「トランプ政権の経済政策および金融規制緩和の国際的金融機関への影響」、「金融テクノロジーと銀行」、「最先進国経済における長期金利の低迷持続の原因と影響」の３つの議題について議論がなされた。
＜セッション１＞ トランプ政権の金融規制緩和：国際的金融機関への影響
セッション１では、トランプ政権の経済政策および金融規制緩和が国際的金融機関に与える影響について議論がなされた。日米政府の共通の関心事項として、経済成長を最優先とした規制改革への取り組みがあること、またこの取り組みが欧州の各国政府が強調し続けているそのほかの面での安定とは対照的なアプローチであることを確認した。そこで、日米と欧州の異なるアプローチを踏まえてどのように国際協調を行っていくのかについて議論が重ねられた。
＜セッション２＞ 金融テクノロジーと銀行：脅威と機会
本セッションでは、新たなテクノロジーが金融セクターにどのような変化をもたらすかについて議論がなされた。まず、これまでの新たなテクノロジーや新規参入者が、既存の金融機関や規制当局、顧客、財政の安定にもたらす脅威と機会について話し合った。
とりわけ、財政の安定と既存の金融機関との公平な競争の場を確保しつつ、同時にイノベーションを促すようなかたちで FinTech 新興企業を規制するにはどのような方法が最適かに関心が向けられた。
＜セッション３＞ 長期金利の低迷持続：原因と影響
セッション３では、長期金利の低迷持続の原因と影響について議論がなされた。参加者
は、自然利子率が永久的に下がっていくのか、またこの状況が物価下落の誘因となる潜在成長力の低下もしくは急速な生産性向上を反映したものなのかといった課題を取り上げ、さらに、低金利が銀行や保険会社、証券会社を含む金融機関に及ぼす影響についても議論した。最後に、参加者は各中央銀行がこの状況に対応するために金融政策をどう運営すべきかについて討論した。
PIFS Japan-U.S. Symposium 2018, p. 1

Session 1: Trumponomics and Financial Deregulation:
Impact on International FIs
In Session 1, participants discussed the impact of Trump administration economic policies andfinancial deregulation on global financial institutions. They saw common interests between the
U.S. and Japanese governments in pursuing regulatory reforms that prioritized economic growth,
contrasting this approach with those of European governments that continued to emphasize
stability over all other goals. There was considerable discussion as to how international
cooperation might operate in light of the diverging approaches of the U.S. and Japan on the one
hand and Europe on the other.

Trumponomics
Participants began with a discussion of “Trumponomics.” They agreed that there were three mainelements to the administration’s economic policies: stimulatory fiscal policy, pro-growth
regulation, and “fair and reciprocal” trade.
The centerpiece of Trump administration fiscal policy to date was the large tax cut passed in late2017. Participants agreed that the tax cut was stimulatory, but there were mixed opinions as to its
microeconomic effects. Many participants applauded pro-investment elements such as thecorporate tax cut, arguing that they would contribute not only to current growth but also tolonger-run potential growth. Others expressed concern about what they saw as regressive
elements, which could exacerbate growing income and wealth inequality. There was also
discussion of the sustainability of fiscal policy. Many participants noted that tax cuts had notbeen matched by spending cuts; indeed, fiscal spending had risen considerably. Despite theadministration’s professed concern over deficits, this mix would inevitably lead to growth in thefiscal deficit. Some participants argued that the stimulative effects of current Trumpadministration fiscal policies would wane over the course of 2019, and that unless additional
spending or tax cuts occurred, the effective withdrawal of fiscal stimulus would likely contributeto a substantial slowdown or even recession by 2020. Turning to the U.S.-Japan impact,
participants noted that fiscal stimulus together with rising interest rates would likely lead tohigher U.S. trade and current account deficits (both multilateral and bilateral with Japan) and an
appreciation of the dollar against the yen. In light of the Trump administration’s strong criticismsof trade imbalances and yen depreciation, the macroeconomic picture seemed likely to
exacerbate trade tensions.
With regard to trade policy, participants agreed that the Trump administration presented a
distinctive new approach compared to previous administrations. While some elements
represented continuity with the past, the administration’s singular focus on reducing deficits(including bilateral deficits), preference for bilateral over multilateral agreements, willingness toimpose unilateral and targeted tariffs, and confrontational rhetoric were seen as significant
breaks from the past. Many participants expressed consternation over the administration’s statedpreference for bilateral agreements, which they saw as weakening the global trading system andcomplicating the ability of global supply chains to operate. They warned that this would likely
harm growth in many countries, including the U.S. and Japan, both of which relied heavily on
global markets and supply chains. There was some debate over the administration’s willingness
PIFS Japan-U.S. Symposium 2018, p.

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to threaten or impose trade remedies for allegedly unfair trade practices by other countries. Someparticipants argued that there were indeed many unfair trade practices that adversely affected
U.S. firms, and that the WTO and existing FTAs were not able to properly enforce them. Others
disagreed, either because they saw the administration’s definition of “fair” as arbitrary or
because they worried that unilateral actions would threaten the multilateral system. They argued
that deficiencies in rules or enforcement should best be dealt with in a cooperative manner.
Finally, there was considerable debate over the confrontational approach of the administration.
Some argued that it was simply a negotiating tactic, noting that the agreements to date, such as
the USMCA (“new NAFTA”) were generally supportive of existing trade agreements andpractices, despite the volley of threats and insults that preceded agreement. Others felt that thethreats represented President Trump’s core desire to attack the multilateral trading system andworried that the efforts to gain short-term relative advantage versus individual trading partners
would alienate countries that would be potential allies in reforming global trade rules or in
confronting Chinese practices that disadvantaged firms from the U.S., Japan, and EU.
Participants agreed that Chinese trade and economic practices had been a particular focus of
Trump administration trade policies and rhetoric; however, there was disagreement about
whether the goal was simply eliminating those practices or to be a key element in a broader
effort to contain China or slow its rise as a global power. They noted that Japan was also afrequent target of Trump administration rhetoric and pressure, which some attributed to thepresident’s personal experiences in the New York real estate markets in the 1980s. Two issues
were raised of particular concern to Japan. First was U.S. pressure to engage in bilateralnegotiations, which many participants saw as an attempt to use market leverage to get “TPPplus” access to Japanese markets without reciprocating or rejoining TPP. Second was theadmininstration’s apparent determination to make currency central to trade agreements,
including binding disciplines on exchange rates and exchange rate policy. This was seen by
many participants as a dangerous development for Japan.
The third element of Trumponomics was a pro-growth regulatory agenda. One element was anemphasis on deregulation, with the administration seeking to reduce regulations and simplify
rules with the objective of allowing businesses to focus on growth and for markets to operate
without interference. Many participants also noted a greater emphasis on cost-benefit analysis inrulemaking, as well as a shift in priorities as to which costs were most important. (This wasparticularly true with regard to environmental policy, for example.) There was considerable
discussion throughout Session 1 about regulatory policy—and especially financial regulation—that is elaborated upon below.
Looking at Trump administration policies holistically, a number of participants questioned
whether the approach could be understood as coherent, noting that while the fiscal and regulatory
agendas prioritized economic growth above other policy concerns, the administration’s trade
policy constituted a drag on growth. They also pointed out that stimulatory fiscal policy
conflicted with the administration’s stated goal of eliminating the country’s trade deficit.
Nonetheless, there was considerable support for elements of Trumponomics, especially thefinancial regulatory agenda.

PIFS Japan-U.S. Symposium 2018, p.

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Diverging Approaches to Regulation
Participants discussed a series of dilemmas and questions facing financial regulators, including
the trade-offs between growth and stability, whether to regulate entities or functions, whether
regulation and supervision should be principles-based or rules-based, and how to define a levelplaying field. They noted that, despite commitments to some common principles and rules at the
global level, countries often pursued diverging approaches to regulation. This raised concerns
about coordination among regulators, competitive effects for financial institutions, andcomplications for cross-border transactions and multinational financial institutions.
A particular focus of discussion was what many participants saw as diverging approaches toregulation between the U.S. and Japan on the one hand and Europe on the other. Both the U.S.
and Japan were increasingly emphasizing the importance of growth-oriented policies. In the
U.S., this could be seen in a variety of moves, including the recent modification of the DoddFrank Act to provide regulatory relief for non-systemically important financial institutions and toroll back “goldplating” of capital requirements. Japanese regulators similarly had been voicing
concerns for several years about overreach by international regulatory bodies in banking,insurance, and derivatives. However, despite a general sense of relief that the U.S. was rollingback some of the more burdensome post-crisis regulations, a number of participants cautionedthat it was not clear what the effects would be on Japanese financial institutions. While Japanesefinancial institutions would benefit from lower corporate taxes and to modify the interpretationof the Volcker Rule to allow for more market-making activities, a number of participants pointed
out that it was as yet unclear whether major Japanese banks with small U.S. operations would
continue to be regulated as systemically-important banks (G-SIBs). The crux of the question waswhether G-SIB designation—and all the enhanced supervision, capital requirements, living will
requirements, and stress testing that entailed—would be based on U.S. operations or global
operations. Many participants argued strongly that G-SIB regulation by U.S. authorities should
be based solely on the size of their U.S. operations, but worried that they would in fact receive
no regulatory relief despite the raised thresholds for G-SIB designation. Still, overall, there was asense among participants that U.S. and Japanese financial institutions and regulators shared morecommon interests with each other than they did with European regulators.
European regulators were seen by participants as continuing to be fixated on reducing financial
vulnerability by increasing regulations on financial institutions across the board, regardless of theregulatory burden on financial institutions or the effect on financial institutions’ ability to financeproductive investment. Participants pointed out that this was as at least as true in a number ofrespects for the UK as for the rest of the EU, as seen for example in the ringfencing mandated by
the Vickers Rule—and some argued that the UK would likely continue down the track of moreburdensome regulation after Brexit. This divergence created challenges for the U.S. and Japan inthree ways. First, more burdensome regulations affected U.S. and Japanese financial institutions
operating within Europe. Second, some European initiatives were seen to have extraterritorial
effects, such as the General Data Protection Regulation (GDPR), Solvency II, and MiFID II rules
on unbundling and dark pools. Third, a number of participants worried that European regulators
were imposing their approach in international regulatory bodies such as the Basel Committee andthe International Association of Insurance Supervisors (IAIS).

PIFS Japan-U.S. Symposium 2018, p.

4Key Issues for Regulators
With the initial G20 financial regulatory agenda was almost fully implemented, participants
identified a variety of challenges that continued to face regulators in the U.S., Japan, and Europe.
Some of these were new challenges, while others showed continuity with the concerns that had
led to post-crisis G20 efforts at regulatory cooperation and standard-setting. In some cases, anumber of participants argued that the challenges were side effects of post-crisis regulation itself,
calling for a reappraisal of local regulation and global standards.
A major concern for many participants was fragmentation of global financial markets andfinancial services. In derivatives, a number of participants argued that EU rules on clearing andcounterparties were already leading to fragmented markets, and they worried that the EU would
require further onshoring of clearing and other operations in reaction to Brexit. Brexit was seen
as having two negative effects for Japanese and U.S. financial institutions. One was that mosthad based their European operations in the UK. Depending on how Brexit was managed, theymight be forced to move significant portions of their personnel and functions elsewhere in theEU; regardless of the final outcome, planning was already requiring considerable time, attention,and expense. Second, some expressed concerns that the EU’s existing equivalence
determinations for financial supervision in the U.S. and Japan might be reconsidered—and evenimperiled—if the Brexit agreement did not ensure that UK financial supervision were considered
equivalent. More generally, participants pointed out that many jurisdictions were choosing toringfence bank capital, making it harder (and thus more expensive) to pursue a global approachto managing capital. Some argued that ringfencing would also prevent multinational financial
institutions from moving capital across borders in case an affiliate in a particular country needed
it to deal with losses or a crisis; while this would protect depositors and governments in othercountries from possible losses, it could actually increase the vulnerability of each affiliate. On
top of these concerns, participants expressed continued frustration over overlapping andsometimes contradictory regulations. In general, multinational financial institutions would
choose to meet the strictest standards across their global operations, raising costs relative to local
rivals; however, where standards actually contradicted each other, it was argued thatinternational regulatory cooperation was necessary for financial institutions to operate acrossborders.
Many participants pointed to regulation of data as an example of contradictory regulations
among major jurisdictions. This was an emerging issue that had not been a focus of the initial
G20 post-crisis financial regulatory agenda, and participants expressed concern that jurisdictions
were pursuing not only contradictory regulatory approaches, but also ones with extraterritorial
implications—in other words, it might not be possible for multinational financial institutions tofollow different practices in different jurisdictions, but would have to face the contradictions
across their operations. Participants pointed to two areas in particular where diverging
approaches to regulation of data were creating problems for financial institutions. One of thesewas data privacy, where the EU had taken on a much more interventionist and extraterritorial
approach than the U.S. The introduction of GDPR meant that any entity doing business in the EU
or with EU customers was restricted in its use of data (for example, for cross-marketing or
selling data), at the risk of large-scale financial penalties. In contrast, U.S.—and, to a lesser
extent, Japanese—rules on data privacy were much less restrictive. Data localization was anotherconcern for multinational financial institutions. A number of jurisdictions had imposed data
PIFS Japan-U.S. Symposium 2018, p.

5localization rules stating that customer and operations data for local operations had to be stored
on local servers (and in some cases, could not be stored in overseas servers). This would
complicate efforts to centralize information management or to reduce costs by storing it in thecloud or in less expensive jurisdictions. Meanwhile, home regulators in many cases continued toinsist on access to a financial institution’s global operations, creating an impossible situation.
Thus, participants argued that it was essential that global regulatory bodies engage with data
issues in order to enable cross-border transactions and prevent further fragmentation.
As in previous years, another concern among participants was about risk migration. They argued
that the trend of the last decade had been toward greater regulation of banks and insurancecompanies, raising their costs and reducing their flexibility. For banks, it was argued that riskweighted capital rules—exacerbated for G-SIBs in the U.S. by stringent stress testing—were
preventing them from lending to the borrowers most in need of credit, including small businesses
and even many mortgages. As a result, new players had entered the field, including fintechs andnon-banks of various sorts. This was seen as particularly true in the U.S. (whereas in Japan, theresult was reduced availability of credit, particularly in rural areas). The lighter regulations
facing these new players made them more competitive versus banks, but also probably less safe.
The migration of credit from banks to other types of financial institutions also meant the
migration of risk from well-capitalized, well-supervised banks to less capitalized and lesstransparent entities, raising the possibility of new concentrations of risk in the economy, akin to
the years before 2008. Similarly, a number of participants worried that fintechs and asset
management firms were increasingly offering financial products and services that were incompetition with insurance companies. They argued that this not only amounted to unfair
competition, but also created risks of which customers were not aware. With regard to bothbanking and insurance, participants raised particular concerns about fintechs—not only withregard to capital buffers and risk management, but also fraud, data privacy, and data protection.
(Some participants conversely raised concerns that moves to regulate fintechs could retard
beneficial innovation in favor of preserving incumbent financial institutions. Issues related to
fintech are discussed extensively in the summary of Session 2.) Looking at the whole picture,some participants warned that overregulation in banking and insurance, combined with“regulatory vacuums” in other areas of finance, was creating conditions for the next financial
crisis.
Finally, a number of participants expressed concerns about divergent approaches to regulation of
insurance. One major concern was that EU insurance regulators would be successful in making
Solvency II the basis of global standards. Compared to U.S. and Japanese standards, Solvency II
was seen as stunting insurance firms’ ability to invest in growth assets. The restrictive approachof Solvency II was seen as problematic in a world of low interest rates, and thus a particularconcern for Japanese insurers. With regard to fintech participation in insurance, someparticipants lauded the Japanese Financial Services Agency as having found the right balance
between allowing innovation and preventing unfair competition. Perhaps ironically, theyremained frustrated by what they saw as unfair competition from a traditional player, Japan Post
Insurance.

PIFS Japan-U.S. Symposium 2018, p.

6International Cooperation
Observing such regulatory divergence, participants expressed concern about what would happen
as an increasingly globalized financial industry coincided with declining international
coordination. Thus, they discussed the prospects for enhancing cooperation, as well as thepotential impacts of the failure to do so.
A key question for many participants was whether the U.S. was still in a position to set the global
regulatory agenda. A number of participants were skeptical, arguing that the Trumpadministration’s unilateralist “America First” approach had alienated potential allies, who had
come to doubt the willingness of the U.S. to provide public goods (e.g., acting as global lender oflast resort) or to necessarily abide by its international commitments. Other participants disagreed.
They pointed out that U.S. financial markets remained the largest and most vibrant in the world
and that U.S. financial institutions were among the world’s most competitive global players.
They also argued that the growth-oriented approach of the U.S. administration provided an
attractive alternative to what they saw as a more hidebound European approach. With regard toskepticism that the U.S. would keep its commitments, they emphasized that U.S. officials
continued to participate in global forums and regulatory bodies and that U.S. agencies wereleaders in applying rigorous cost-benefit analysis to proposed regulation. They expressed hopethat U.S. and Japanese officials would find common cause in shaping global standards, including
not only banking and derivatives, but also insurance and data.
While much of the discussion focused on rules and standards, participants also discussed theissue of how regulatory and political divergence might affect crisis management. Several
participants worried that the U.S. under the Trump administration would be less willing tocontribute to the resolution of a financial crisis outside its own borders, whether by serving as
lender of last resort through the Fed (whose powers had been curtailed by Dodd-Frank) or
supporting an IMF-led bailout in the event of a currency crisis. Others were less concerned,
arguing that providing public goods in such cases would be in the interest of the U.S. andpredicting it would act accordingly. There was also some disagreement about the prospects for
coordination in case of a failure of a multinational financial institution. A number of participants
were optimistic, pointing out that regulators in the U.S., Japan, and Europe had been preparing
the ground for such an event by requiring G-SIBs to create resolution plans, setting up collegesof supervisors, and establishing clear procedures through MOUs. Others were more skeptical.
They argued that, in the event of major failures that could be costly for governments to manage,
political leaders rather than working-level bureaucrats would likely be making decisions about
whether and how to provide funds or allow capital to leave the country. They predicted that the
involvement of political leaders would make cooperative solutions less likely, as they would notwant to be held accountable for the possibility of using taxpayer funds to help foreign
governments or financial institutions. President Trump’s unilateralist proclivities made it evenless likely.
Another concern was the Trump administration’s stated preference for bilateral over multilateral
cooperation. Given the global nature of many financial markets and institutions, many
participants expressed concern that an emphasis on bilateral cooperation would only exacerbate
the fragmentation that was already being driven by diverging national regulatory approaches. A
similar concern was raised over trade negotiations, where participants worried that global supply
PIFS Japan-U.S. Symposium 2018, p.

7chains would be disrupted by the creation of a spaghetti bowl of bilateral agreements withdifferent rules and coverage. They worried particularly about the effects on supply chains inelectronics and IT hardware, which were not only complex and highly international, but were inmany cases related to economic and military security and typically involved China. Others weremore optimistic. They argued that bilateral agreements were not necessarily in competition withmultilateral cooperation; rather, they argued that bilateral agreements could serve as templates
for broader cooperation. They noted that this had long been a strategy of the U.S. for setting
multilateral trade agendas. Several pointed to the digital commerce provisions of the newlyagreed USMCA as a good example of that strategy. In this sense, they expressed hope thatnegotiations on a U.S.-Japan FTA could become the basis for global trade and financial
regulation going forward. Others were skeptical. They argued that TPP, whose centerpiece was
U.S.-Japanese cooperation, was designed precisely for the purpose of laying out new rules that
other countries (most prominently China) would be required to follow. However, President
Trump had withdrawn the U.S. from TPP, with the express intent of using market power to forge
bilateral deals that would advantage U.S. firms. Finally, a number of participants argued that the
Trump administration had not shown a strong commitment to cooperative trade relations withJapan—rather than focusing on creating rules to level the playing field, govern new forms ofcommerce, and constrain state-owned enterprises and anti-competitive practices, theadministration had imposed tariffs on Japanese steel (refusing to provide waivers that were
offered to other allies), threatened to impose tariffs on Japanese automobiles, called for“reciprocal trade” in the auto sector, and demanded currency provisions and a formal
commitment to reducing bilateral trade imbalances. Some even worried that the revised CFIUS
rules would be used to block Japanese investments in the U.S., even though the main target was
clearly China.
In the end, participants agreed that trust was essential to meaningful international cooperation,
both in terms of rules and standards and in terms of crisis management. Opinions remained
mixed as to whether there was sufficient trust among leading states to achieve the cooperationnecessary to keep finance global. Many hoped that there was enough trust to allow the U.S. andJapan to work together in advancing a growth-oriented financial regulatory agenda at the global
level.

PIFS Japan-U.S. Symposium 2018, p.

8Session 2: Financial Technology and Banking: Threats andOpportunities
In Session 2, participants discussed the ways in which new technologies were transforming thefinancial sector. They discussed how new technologies and new entrants both threatened andoffered opportunities for incumbents, regulators, customers, and financial stability. A particularconcern was how best to regulate new fintech actors in a way that promoted innovation while
also ensuring financial stability and a level competitive playing field with existing financial
institutions.

Defining Fintech
Participants agreed that “fintech” encompassed a large variety of technologies, practices, andentities, each of which had its own particular impacts on markets and users of financial services.
Moreover, not all fintech was seen as disruptive, and in many cases did not even mean anincursion of new actors. While new client-facing practices such as mobile money andcrowdfunding offered significant new competition to traditional financial institutions, much of
the fintech revolution was operational in nature—for example, allowing asset managers to pursue
high-frequency trading practices, improving credit evaluation and Know Your Customer (KYC)
verification, and lowering the cost of tracking and recording transactions.
At its core, the advent of fintech was associated with a series of developments, including
increased speed and processing power of computers, the development of Big Data and new tools
to analyze it, artificial intelligence and machine learning, advances in cryptography, and theubiquity of digital devices among retail users of financial services. Whether those technologicaldevelopments threatened or opened opportunities for existing financial institutions or new
entrants depended on the particular functions they enabled, as well as the demands of clients inparticular jurisdictions.
Participants discussed several technologies as having particular potential to disrupt existing
practices and actors. One of these was the combination of artificial intelligence (AI) and Big
Data. A number of participants predicted that this would transform credit scoring, as financial
institutions drew on a broader array of often high-frequency data to better understand customers’ability to service their loans. In addition, AI and machine learning would allow more rapid
adaptation of credit models. Others voiced concerns about reliance on these new models of credit
scoring, both because the models had not been verified over a range of economic conditions andbecause the black-box nature of machine learning would complicate regulation and supervision.
They worried that reliance on untested models could have negative effects on financial stability,
even if they were a less expensive method of credit scoring. In contrast, there was considerable
enthusiasm for the use of AI and Big Data in streamlining and improving the accuracy of KYC,
which could reduce expenses and the risk of large penalties. AI-enabled roboadvising wasanother function that was seen as offering benefits to both customers and asset managers, and anumber of participants predicted that it would enable asset managers to offer a range of services
at different prices to meet the needs of customers.

PIFS Japan-U.S. Symposium 2018, p.

9There was also considerable discussion of distributed ledgers. Some of this discussion focusedon cryptocurrencies, which were seen as largely providing an alternative to services offered byexisting financial institutions. But there was considerably more enthusiasm for the ways in which
they could be used by existing financial institutions to reduce the cost and increase the resilienceof record-keeping and settlement. In this regard, a number of participants cautioned that it was
important to bear in mind the distinction between public distributed ledgers (such as for bitcoin)and permissioned distributed ledgers. The bitcoin verification system required significant
computing power, time, and energy usage, all of which made it unsuited to the purposes of highvolume financial institutions. In contrast, a variety of major financial institutions were alreadyexperimenting with permissioned systems that could potentially increase efficiency, although
there was no consensus as to whether they were likely to displace existing systems andapproaches. Several participants noted that public distributed ledgers and cryptocurrency usage
were likely to be most important in jurisdictions where trust in public authorities and financial
institutions was low—such as in some of the former Soviet republics, where cryptocurrencies
were commonly used.
Participants also discussed the importance of platformization, whether through retail-based
platforms such as Amazon, Rakuten, or Alibaba, social networks, or customized financial
services and contracting platforms like Ethereum. Several saw this trend as potentially having
significant disruption to existing and new financial services providers. Participants noted several
distinctive features of platforms that could disrupt existing systems and financial institutions.
One was a tendency toward monopoly due to network effects, as increasing scale and scope ofservices provided through the platform increased its attractiveness, decreased its costs, andexpanded its access to valuable customer data. Related to this characteristic, a number ofparticipants worried that, even when other financial institutions were able to offer services
through particular platforms, the platform itself would be in a position to extract much of the
profit to itself. Finally, the rise of platforms raised concerns about whether and how they should
be regulated—for example, when platforms are used by other firms to offer financial services,
who should be held responsible for compliance with prudential regulation, KYC, data privacy
and security, etc.? A number of participants worried that platforms that did not define themselves
as financial service providers could nonetheless create concentrations of risk or skirt compliancewith key financial regulations. There would also be competitive implications if platforms were
not subjected to the same regulatory burdens as their competitors.
Fintech also operated differently across different jurisdiction. For example, participants notedthat the fastest growth in mobile money and digital payments had been in China and somedeveloping countries that had vast populations of “unbanked” people who had access to mobile
phones or smartphones. In these countries, payments services like Alipay or M-Pesa had
operated as an engine of financial inclusion, enabling unbanked people to store and transfer
money safely, cheaply, and quickly. Other digital financial services for the working classes andnew middle classes were built on top of those platforms, expanding the availability of financial
services. Alipay, for example, was using a range of new financial technologies to improve its
financial service offerings, including the use of proprietary Big Data for credit scoring and taking
advantage of platformization to build unprecedented scale and scope in payments services. In
contrast, in countries such as the U.S. and Japan, most mobile and digital payments werescaffolded upon existing platforms like VISA and Mastercard, leaving them as the primary
players in payments. Similarly, Big Data credit scoring was more important in developing
PIFS Japan-U.S. Symposium 2018, p. 10

financial systems, where full-file credit reports and analytics were not available to financial
institutions. In the U.S. and Japan, in contrast, Big Data remained a supplement to existing
methods of data gathering and analysis.
While participants discussed at length what was new about fintech, many argued that it was
equally important to focus on what remained unchanged. Looking at the adoption of new
financial technologies by existing financial institutions, they argued that fintech was not a
fundamental transformation of the business but was rather just offering more efficient ways ofmanaging standard tasks, from trading to credit analysis to record-keeping. In this sense, they
saw the current wave of fintech to be just part of a long continuum of financial institutions
innovating and adopting new practices in response to technological, economic, and legal
developments. Others felt that the current fintech wave was different in important respects,
offering new products and services, new algorithms and analytical techniques, and new sourcesof data that could significantly change the relationship of financial institutions with theircustomers, patterns of financial inclusion, competitive conditions, regulatory practices, and evendefinitions of what it meant to be a financial institution.

Uses and Implications
Beyond the general discussions of new financial technologies, participants also focused on
several particular examples. One such topic of debate was digital currencies. Participants agreed
that it was important to distinguish among different types of digital currencies. While privatelyissued “currencies” like bitcoin had received much of the public attention, they were seen as
differing significantly from public digital currencies (issued by central banks as legal tender) andtokens (whose value is based on an underlying asset such as a central bank-issued currency).
Participants questioned whether privately-issued digital currencies should be considered ascommodities or securities or legal tender, and many argued that the price volatility of a digitalcurrency like bitcoin and the revealed preference of its owners to speculate on future priceincreases meant that it was an asset. In addition, a number of participants argued that private
cryptocurrencies should not even be allowed to exist. They noted that the anonymous nature of
cryptocurrency transactions enabled money laundering, tax evasion, and illegal transactions—and given the relatively high price of bitcoin transactions, they argued that anonymity was reallythe main point of using them for transactions. Finally, if any private digital currencies actually
did take off as a major vehicle for payments and credit, they worried about the impact on central
banks’ ability to manage monetary policy and monitor financial stability. In contrast, public
digital currencies were seen as an extension of central banks’ existing operations, although theyraised key issues for the role of banks and payments systems.
There was also discussion of ongoing experimentation with distributed ledgers for financial
services. Several participants brought up one of the most highly-publicized such experiments, thedeclaration by the Australian Stock Exchange that it would replace its existing electronic
settlement system with a permissioned distributed ledger. While some participants were
enthusiastic about the potential benefits of the change, others were highly skeptical. They notedthat the changeover would require every ASX participant to change its IT systems toaccommodate the proposed settlement system, but that there was no assurance or even
expectation that settlement would be made more accurate or efficient or that costs would belowered for users. They also raised questions about whether the proposed system was even
PIFS Japan-U.S. Symposium 2018, p. 11

technologically feasible. Pointing out that implementation of the replacement had already been
postponed indefinitely, these participants predicted that it would never happen. Despite theuncertain state of the ASX initiative, other financial institutions and firms continued toexperiment with distributed ledgers for other functions, including shipping, trade finance,
custody, and post-trade settlement.
Several participants also raised the issue of “insuretech,” which they saw as potentially offeringsignificant new efficiencies to insurers. Unlike with some of the other financial technologies
discussed at the Symposium, most participants in this discussion focused on how existing
insurance firms could adapt the technologies rather than on the threat of new entrants. To someextent, this appeared to be due to the heavily-regulated nature of insurance markets and therelative difficulty of unregulated new entrants offering particular insurance products. Insuretech
included the promise of client-facing technologies, improvements in claims adjustment and risk
assessment, and streamlining of business processes. As an example of client-facing technologies,
some participants cited the use of biometric verification or voice recognition to reduce fraud andincrease the security of transactions. There was also discussion of how use of sensors, Big Data,
and AI could improve the speed, accuracy, and cost-efficiency of claims adjustment—for
example, it was noted that casualty insurers were developing systems to rapidly assess damage
due to natural disasters such as hurricanes by using satellite imagery and data on rainfall andwindspeed, benefiting customers who might otherwise have to wait much longer for a claims
adjuster to arrive and assess each individual situation. Insuretech appeared to raise fewer issuesof market disruption or regulatory challenge than some of the other fintech stories, largely
because technologies were being used to supplement rather than supplant existing processes andpractices.
Participants also discussed the implications of new financial technologies and fintech companies.
A key question was who would be the winners and losers. While predictions varied considerably
depending on the particular jurisdiction or sector, participants advanced several general
expectations. One issue was whether the entrance of fintech companies would displace
traditional financial institutions or simply expand markets. While some participants felt thatmarket expansion would be more important than displacement in some cases—for example,
emerging economies where low-cost digital payments services could offer new opportunities forfinancial inclusion—in general, they expected a redistribution of value from traditional financial
institutions to new actors and clients. In some cases, this would be due to increased competition
either because new fintechs faced fewer regulatory burdens or just due to an increased number ofplayers in a given market. Even in cases where fintechs chose not to enter sectors as competitors
in order to avoid regulation, a number of participants argued that incumbent financial institutions
would be forced to rely on them for technology services or as platforms. A second, partiallyrelated point, was that many participants agreed that the scalability and network effects
associated with many of the new financial technologies would likely lead to increased
concentration—as in the case already of platforms such as Alipay. To compete would require
high levels of investment in research and development. Finally, a number of participants argued
that the existing advantages of traditional financial institutions would likely dissipate over time.
They noted, for example, that the largest customers for retail asset managers in Japan and the
U.S. were currently in their fifties or older, and had become accustomed to personal service
either through brick-and-mortar shopfronts or phone consultations; in twenty years, however,many of those customers would be replaced by a younger generation that was much more
PIFS Japan-U.S. Symposium 2018, p. 12

comfortable with digital technologies and would likely not value such personal service as highly.
Thus, incumbent firms would have to balance the costs associated with the preferences of theircurrent customers with the investment needed to attract very different future customers—manyof whom would likely be open to new, tech-savvy market entrants. To many participants, one of
the implications of these forces was that small financial institutions would likely find themselves
unable to compete. In particular, there was considerable pessimism about the business models ofsmall banks—at best, some argued, such banks would essentially become servicers for platforms,
utterly dependent on the platforms for services from payments to settlement to customer
interfaces to data security.

Regulatory Challenges
Participants agreed that the emergence of new financial technologies and fintech firms posed avariety of challenges for regulators, including whom to regulate, what to regulate, and how toregulate.
One major challenge was the question of whom to regulate. Participants noted that many fintechs
saw themselves as tech firms rather than financial institutions, and in many cases the lines
between technological and financial services was blurred. For some tech firms, provision offinancial services was a small part of their business model, or one that was in place just to
support core functions. The development of payment capabilities through social networks ormessaging apps was one example—at what point did the payment function become systemicallyimportant enough (or enough of a fair competition issue) to regulate? And should such a firm be
regulated across the board as a bank, with all the capital, liquidity, and KYC requirements that
implied? Several participants pointed to the example of China, where Alipay had become thebiggest provider of payment services in the country but was still not regulated as a bank, as anegative example—they argued that it not only had unfair advantages relative to regulated
financial institutions, but also potentially posed a serious systemic risk. Another aspect of the“whom to regulate” dilemma was whether financial regulators should oversee providers offinancial institutions’ core technologies. For example, if banks were dependent on platforms andvendors for key services such as record-keeping, data analytics, or customer data protection, whoshould be responsible for ensuring the integrity of those services—the bank or the provider?
With increased outsourcing of such core functions, participants agreed that regulators would
need to clarify the issue of responsibility. Finally, some participants argued that the question of“whom to regulate” was misplaced—rather than relying on regulation of entities, the flux createdby emerging financial technologies made it all the more important to focus on regulation byfunction.
The second question was what to regulate. Participants agreed that prudential regulation shouldbe imposed on fintechs where they were engaged in core activities of regulated financial
institutions. Beyond that, various participants proposed additional areas in which fintechs,
whether operating as financial institutions themselves or providing core services to regulated
financial institutions, should be subject to financial regulation. A key one for many participants
was data security and privacy. With more and more regulated financial institutions outsourcing
their data storage and client interfaces to outside firms, these participants worried that there wasinsufficient supervision of how customer data was being shared and made secure. They alsoemphasized that it was important to make clear where responsibility for those functions lay,
PIFS Japan-U.S. Symposium 2018, p. 13

whether with the vendor or the financial institution. There was also considerable support for
ensuring that fintechs be held to the same standards of KYC and anti-money laundering
compliance to which currently regulated financial institutions were held. This was not only toensure a level playing field, but also out of concern that criminal behavior could be facilitatedthrough less-regulated payment systems and providers of other financial services. Finally, for big
fintechs, a number of participants argued that there should be resilience planning. While there
were no Japanese or U.S. equivalents to the role played by Alipay in the Chinese payments
system, there might be other firms that had systemic enough roles that a failure could reverberate
through the financial system.
Turning to the question of how to regulate, participants agreed that it was important to promote
innovation while at the same time preventing negative effects on customers or financial stability.
They agreed that many of the new financial technologies offered potential benefits ranging from
improved financial inclusion to better credit scoring and risk management practices to lower
costs to users of financial services. However, participants had real concerns. With regard to fraudand customer protection, they pointed to a variety of cases in which fintechs had either defrauded
customers, misused their data, or not properly protected their investments. Although many
agreed the problem in the U.S. and Japan was not as bad as in China during the initial years of its
fintech revolution, they also noted that the two biggest failures of cryptocurrency exchanges todate, Mt. Gox and Coincheck, had occurred in Japan. Many participants were equally, if not
more, concerned about the potential for systemic risk across multiple dimensions. For example,
some worried that machine learning-based automatic trading systems could lead to excessive
volatility of asset prices and herd behavior, potentially leading to market crashes. Participants
were also concerned about the unforeseen consequences of the increasingly widespread use of
new data sources and algorithms. New credit scoring systems based on retail and behavioral data
were unproven and could lead to poor credit decisions; moreover, to the extent that they had
been empirically verified, they had not been through multiple business cycles, leading someparticipants to be skeptical of whether they could account for the credit risk effects of a major
downturn.
To address concerns of systemic risk and customer protection, participants agreed that greater
regulatory clarity was essential, both for existing financial institutions that needed to understanda changing regulatory environment and for fintechs that might not understand that their financial
activities would make them subject to financial regulations. They felt that it was imperative thattech firms engaged in financial services develop a greater understanding both of how financial
markets work and of the legal context in which they were operating. In this regard, a number ofparticipants emphasized the importance of communication between regulators, financial
institutions, and tech firms to clarify for all sides how best to promote the use of newtechnologies without creating new risks or legal vulnerabilities. Thus, they advocated theestablishment of fintech advisory councils for regulators as well as other venues to ensure regularcommunication between regulators and fintechs on emerging technologies, risk analysis, andlegal obligations. Several participants gave examples of useful moves in that direction, including
the SEC’s new Strategic Hub for Innovation and Financial Technology (FinHub). In addition,
there was strong support for the concept of regulatory sandboxes, both in order to facilitatecommunication and to allow for controlled experiments with a variety of new technologies,
services, and business models.
PIFS Japan-U.S. Symposium 2018, p. 14

All of these considerations highlighted the significant challenges facing regulators. One was thechallenge of ensuring that they had sufficient knowhow and technical capabilities both tounderstand the new fintech business models and to monitor them in practice. Few regulatory
agencies around the world (with the possible exception of Singapore, which some participantsconsidered a model of the regulatory sandbox approach) were seen as having sufficient technicalcapabilities to effectively understand, let alone regulate or supervise some of the newtechnologies disrupting financial services. Several participants encouraged regulatory andsupervisory agencies to seek out expertise through consultants or public-private advisory
mechanisms rather than relying solely on developing the capabilities of their own staff. Anothermajor challenge for regulators would be cross-border cooperation—while cooperation on
established financial regulation and supervision was already challenging, participants worried
that agencies did not yet have clear protocols or MOUs or even common understandings ofregulatory challenges in place. However, the profusion of digital services and outsourcing of data
meant that it might often be unclear which jurisdiction was responsible for regulating a particularcompany or function, raising the possibility either of regulatory gaps, contradictions, or overlaps.

Japan-Specific Issues
In addition to the general principles and examples described above, participants also discussed
some issues that they saw as specific to Japan. Some participants warned that Japanese financial
institutions might not be up to the challenge of keeping up with fintech developments. They
noted that Japanese financial institutions still often preferred to promote from within, but that
this could retard efforts to rapidly ramp up introduction and use of new technologies andpractices. Some were also critical of the capabilities of the Japanese software industry, which
they saw as less innovative and open to new ideas than that of the U.S. Smaller financial
institutions, such as regional banks, were seen as facing particular challenges. The regional banks
were already struggling due to low margins and weak local economies, making it even harder forthem to find the resources to take advantage of new platforms and technologies. Bigger banks,
insurers, securities firms, and asset managers would be better able to manage the transition andimprove their offerings, despite the challenges that they too faced. Thus, the fintech revolution
was seen by many participants as likely to accelerate the decline of small banks and exacerbate
concentration in the banking sector.
There were conflicting views about what Japanese customers desired from their financial
institutions. Some participants argued that Japanese customers continued to desire a level of
personal service that would retard the shift toward more phone-based payments, roboadvising,and other fintech services. Others disagreed. They noted that Japanese banks and asset managers
had already moved well along the road to less human interaction and more online transactions,and predicted that the younger generation would continue to demand more convenience andlower costs, like their counterparts around the world. At the least, Japanese financial institutions
would likely need to follow a mixed strategy in managing their expansion of digital services forcustomers. In addition, a number of participants argued that expansion of digital services would
be harder in Japan than elsewhere because Japanese residents still far preferred cash over otherpayment options. Some felt that this was cultural, while others suggested that they preferred theanonymity that cash provided. Either way, they felt, Japan would take much longer to be a
cashless society than China or the U.S., with implications for how banks would need to operate.
PIFS Japan-U.S. Symposium 2018, p. 15

Finally, a number of participants lauded the Japanese Financial Services Agency for its progressin developing frameworks and practices for regulation and supervision of fintech. They pointed
out that some of the biggest cryptocurrency operations in the world were based in Japan andagreed that Japanese regulators had provided valuable guidance for them by clarifying rules
regarding exchange and taxation as well as having officially declared that cryptocurrencies could
be used as legal tender in commercial transactions. Others considered this permissive approachto cryptocurrencies to be dangerous.
While it appeared that Japanese regulators were ahead of the game in some respects, participants
agreed that the regulatory framework was still a work in progress. The JFSA had shifted to amore conservative approach to regulating cryptocurrencies and tokens since the failure of
Coincheck earlier in the year, and several participants expressed frustration with what they saw
as the slow pace—for example, Initial Coin Offerings were still not allowed, although regulators
were working in that direction. A number of participants also encouraged the JFSA to continue
its work toward implementing formal regulatory sandboxes rather than following a piecemeal
approach to innovation.

PIFS Japan-U.S. Symposium 2018, p. 16

Session 3: The Persistence of Low Long-Term Interest
Rates: Causes and Consequences
In Session 3, participants discussed the causes and consequences of persistently low long-term
interest rates. They addressed whether the natural rate of interest had declined permanently, andwhether this reflected declining potential growth or rapid productivity growth that was leading tofalling prices. There was also discussion of the effects of low rates on financial institutions,
including banks, insurance companies, and securities firms. Finally, participants debated how
central banks should manage monetary policy to respond to the situation.

Causes of Low Long-Term Interest Rates
Participants observed that standard assumptions about the behavior of interest rates and inflation
had broken down over the last two decades. In particular, they noted the apparent disappearanceof the Phillips Curve, flattening of yield curves, and breakdown of a clear relationship between
interest rates, money supply, and inflation across the developed economies. They also noted that
economic growth rates and measured productivity growth had slowed considerably over theperiod, and particularly after the global financial crisis of 2008.
One question for participants was the fate of the Phillips curve. Many participants agreed that the
U.S. and Japanese economies had absorbed most of their excess capacity and that unemployment
now exceeded the level of full employment. Others disagreed, arguing that standard measures of
unemployment underestimated the level of labor slack. They saw this to be particularly true inthe U.S., where labor force participation remained at lower rates than in decades past. These
participants advocated a continuation of expansionary fiscal and monetary policies in order tobring in more women and potential workers on welfare to the labor force. In Japan, someparticipants argued there was still considerable room to move labor from part-time to full-timeand from contingent contracts to regular employment. While wages were finally rising to reflect
tight labor markets in the U.S., Japanese wage growth remained surprisingly flat despite labormarkets that looked historically tight on the basis of standard measures of employment andunemployment as well as growth that many economist believed continued to exceed potential.
Some participants felt that Phillips curves had apparently disappeared in the developed
economies; however, others argued that it had simply become flatter and (especially for Japan)
more L-shaped.
Looking at Japan, one explanation for why inflation was flat was that, despite downward wage
rigidity among regular employees, to the rise of the gig economy and greater reliance on parttime labor had helped employers to hold down labor costs, with the net effect of dampening
wage inflation. Participants also noted that inflation expectations had not shifted and thatJapanese households had shown themselves to be very sensitive to even small rises in prices,leading firms to be more cautious about raising prices or increasing investment. Aging society
and declining population also reduced firms’ incentives to invest. Between declining labor force
and weak investment, it was argued that the potential growth rate and thus the natural real rate ofinterest (r*) had declined to a low level.

PIFS Japan-U.S. Symposium 2018, p. 17

This explanation fit with the more general story of secular stagnation among the developed
countries, although Japan was further down the path due to its demographics. The secularstagnation hypothesis held that low nominal interest rates were the result of low potential growthand low r*. Reasons given for secular stagnation included low productivity growth, excessive
savings, a preference for safe assets, and of course demographic changes. Under standard
measurements of productivity and inflation, it was estimated that the equilibrium real rate forJapan had been close to zero for the last quarter century.
Some participants advanced a more optimistic alternative hypothesis, which they termed “secularinnovation.” This explanation was based on alternative measures of productivity, whichsuggested much faster productivity growth than standard measures. This meant significantly
lower inflation (actually, higher rates of deflation) but also higher real rates of economic growth.
The crux of this argument was that central banks’ statistical methods of measuring inflation did
not properly account for improvements in quality, which could for example be seen in
extraordinary declines in the costs of a variety of goods and services including such varied items
as photography, lighting, and audiovisual entertainment. If that were correct, then the cause of
low inflation was not inadequate demand, but rather innovation. While innovation would raisepotential growth and equilibrium real rates, that effect would be small and would be obscured by
the decline in inflation. Many participants appeared skeptical of the secular innovation claim.
They expressed doubt that productivity growth was at historically high levels, even if quality
improvements were being inadequately measured.
Stepping away from potential growth and r*, some participants also raised the question of why
central banks seemed to have lost the ability of central banks to manage inflation over the last
three decades. Several possible explanations were advanced for this phenomenon. One was thatchanges to the financial systems of developed economies had made it harder for central banks todefine, and therefore measure, money supply. It was suggested that this might account for the
disconnect between assertive monetary policy measures and apparent sluggishness of money
supply growth. Others argued that low inflation in developed economies reflected pricecompetition from emerging economies in an increasingly globalized world where the cost of
moving goods across borders had dropped, barriers to cross-border trade in services had beensignificantly reduced, and prices had become more transparent. As a result, both firms and labor
had lost pricing power. Similarly, it was argued that globalization of finance had led toconvergence of asset prices around the world, which might be having the effect of holding down
U.S. and Japanese interest rates to some extent. A third possibility was that higher capitalrequirements for banks reduced the pass-through of monetary policy; however, many participants
were skeptical, since the decline in potential growth had begun well before the imposition of
post-crisis capital requirements.

Consequences of Low Long-Term Interest Rates
Turning to the consequences of low long-term interest rates, participants focused on the effects
on banks and insurance firms. They identified a number of potentially negative effects, including
compression of net interest margins, lower profitability, incentive to shift portfolios to riskier
loans, and vulnerability to higher rates if they were to reemerge. Empirical studies of Japaneseand U.S. banks suggested that long-term low interest rates did indeed reduce net interest
margins; however, that did not necessarily translate directly into lower profitability since some
PIFS Japan-U.S. Symposium 2018, p. 18

were able to overcome the reduction through cost-cutting or expansion of other business. Thosebanks that were unable to diversify their business models, such as Japanese regional banks, weremore adversely affected by low interest rates. Meanwhile, the decline in demand for loans also
hurt banks prospects.
Insurance companies and pension funds were also seen as vulnerable to persistently low longterm interest rates, in two ways. First, they would have a hard time finding investible assets thatwould give them the returns needed to meet their clients’ needs. Second, as long-term investors,
their asset base was particularly vulnerable to rises in interest rates. However, while low interest
rates created serious challenges to insurers and pension funds, the deterioration of balance sheets
was likely to be gradual and thus manageable.
Another concern expressed among participants was that low interest rates might encourageriskier loans by banks. It was argued that the evidence was mixed on this point. In the aggregate,
the main evidence that banks might be involved in riskier lending was some increase inmaturities. However, some participants argued that drilling down into specific sectors, such asreal estate, revealed pockets of riskier lending. A number of participants suggested an alternative
concern related to the quality of bank loans. They argued that the most serious effect of
persistent low interest rates was that lenders had little incentive to differentiate between good andbad companies as long as the could service their debt, distorting resource allocation and reducing
economic growth. Unfortunately, there appeared to be no way around that problem for Japan,
since raising interest rates would bring the economy back into deflation and strengthen the yen,both of which would negatively affect growth.
Finally, if the secular innovation hypothesis were correct, there should be several
macroeconomic consequences. On the bright side, real GDP growth would remain healthy,
contributing to improved prosperity despite low measured growth. At the same time, it would
imply that asset prices should be rising, which could have significant social and political
implications. It was noted that asset prices were indeed rising in the U.S., which could support
the secular innovation hypothesis. However, many participants argued that rising U.S. asset
prices were more a reflection of the business cycle, continued easy money, fiscal stimulus, andlower corporate taxes, making it difficult to make a case that they were driven by secularinnovation.
Finally, participants discussed the policy implications of the various analyses that had been put
forward. Many participants agreed that central banks should be cautious about raising interest
rates, despite what appeared to be above-potential growth. They noted that inflation remained
low in both Japan and the U.S., and that in Japan average wages had not been rising much due tothe shift from regular employees to part-time labor and the gig economy. While some believed
the Fed still had some room to raise rates without choking off growth, most participants appeared
to agree that the Bank of Japan should not move away from its current inflation target and should
not raise interest rates.
At the micro level, it was suggested that financial supervisors continue to closely monitor theassets and performance of banks, insurers, and pension funds, and to model potential risks if
interest rates were eventually to rise. While most of the risks were seen to be long-term, it wasnoted that there were nearer-term risks for some financial institutions including Japanese
PIFS Japan-U.S. Symposium 2018, p. 19

regional banks, so supervisors and investors should pay particular attention to them. Finally,some participants encouraged governments to keep focusing on supply-side policies that might
improve productivity growth and contribute to stronger growth prospects. This was seen as
particularly important for Japan, whose potential growth was declining due to an aging society.

PIFS Japan-U.S. Symposium 2018, p. 20

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Program on International Financial Systems (PIFS)
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