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

I. Introduction
Good morning, ladies and gentlemen. It is my great honor to say a few words at thebeginning of the 22nd BOJ-IMES Conference. On behalf of my colleagues at the Bankof Japan and myself, I would like to express my sincere welcome to all of you.
At last year’s conference titled “Monetary Policy in a Post-Financial Crisis Era,”
we had active discussions on fundamental issues of monetary policy during the periodof slow economic growth following the global financial crisis. Since then, there has
been further progress in research on the eﬀects of unconventional monetary policy inacademic and central bank circles. Besides, growing attention has been paid to reneweddebate over the slow recovery after the financial crisis, as represented by the thesis ofsecular stagnation. Against the backdrop of these factors, we have selected “MonetaryPolicy: Its Eﬀects and Implementation” as the theme of this year’s conference. The
aim is not only to keep monetary policy at the center of the discussion, but also to put
greater emphasis on implications for policy conduct in practice. I hope that, in lightof the progress in monetary policy research and the recent developments in the global
economy, we will have frank and lively discussions on the monetary policy challenges
that we central bankers currently face. To kick things oﬀ, I would like to raise someissues relevant to these challenges.

II. Global Economic Conditions and Current Issues concerning theConduct of Monetary Policy
Over the past year, the global economy as a whole has been recovering moderately.
However, we have observed considerable diﬀerences in developments of economic
activity and prices among countries and regions. In reflection of these diﬀerences, diverging directions of monetary policy among the United States, Europe, and Japan havebecome increasingly apparent. This certainly was a major feature of monetary policyin the global context for the past year. Meanwhile, headline inflation rates dropped
globally, due primarily to a plunge in crude oil prices. With these significant developments in mind, I would like to raise three current issues concerning the conduct ofmonetary policy.
The first issue concerns the eﬀects of unconventional monetary policy and its transmission channels. In terms of monetary policy implementation, the European Central
Bank launched the expanded asset purchase programme in January, and many of themajor central banks have now adopted quantitative easing (QE). On the research front,

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academic and central bank circles have accumulated studies on unconventional policy that have been conducted vigorously to date. These studies have demonstrated
that unconventional measures, such as QE and forward guidance, have been generating monetary easing eﬀects, primarily through influencing long-term interest rates andasset prices, as well as inflation expectations. I believe that it will be meaningful if
we can further promote a common understanding on unconventional policy by sharing the various insights obtained from both implementation and academic research ofmonetary policy.
The second issue pertains to inflation expectations and the decline in crude oilprices. The plunge in crude oil prices since 2014 has posed a new challenge for theconduct of monetary policy. In October 2014, the Bank of Japan decided to expand
quantitative and qualitative monetary easing (QQE). This policy decision aimed atmaintaining the improving momentum of expectation formation and at pre-empting
manifestation of a risk that the decline in the inflation rate, even though caused by
the oil price decline, could delay conversion of the deflationary mindset, which had
been progressing steadily under QQE. The background to the policy decision is that,
unlike the United States and other countries where medium- to long-term inflation expectations have been well anchored, Japan is in the midst of drastically changing thedeflationary mindset; namely, re-anchoring inflation expectations to the price stability
target of 2 percent. Inflation expectations are obviously one of the most important variables for the conduct of monetary policy. Therefore, it is a major policy concern for
central bankers to gain a better understanding of how to measure inflation expectations,
how such expectations actually aﬀect firms’ price- and wage-setting behavior, as well
as households’ consumption decisions, and how to evaluate the degree to which inflation expectations are anchored. I hope that further progress will be made in research inthis field.
The third issue is how to deal with the international spillovers induced by thediverging directions of monetary policy among advanced economies. In emerging
economies, monetary authorities have paid more attention to developments in foreign exchange rates and international capital flows that are influenced by major central
banks’ policy actions and announcements of their future directions of policies. In addressing these international spillovers, how to use monetary policy, macro-prudential
policy, and capital flow management policy in combination has come to be a crucial
issue, particularly for countries that have financial system vulnerability.

III. Policy Issues concerning Slow Post-Financial Crisis Recoveries
Thus far, I have explained the three issues central banks now face in the conduct ofmonetary policy. Next, I would like to raise some policy issues from a longer-term
perspective. In the wake of the global financial crisis, economic recoveries aroundthe world have been modest relative to past recoveries despite the implementation of
unconventional monetary policy. For the past year or so, academic and central bankcircles have actively discussed how to interpret this fact. Such discussions have been
initiated by Lawrence Summers’ revisit to the “secular stagnation thesis” advocated26 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2015

Opening Remarks

originally by Alvin Hansen in the late 1930s. Various views have been raised regarding
the causes of slow post-financial crisis recoveries; for example, the persistent weakness
on the demand side of the economy and the low productivity on the supply side.
There have been wide-ranging interpretations and views on secular stagnation. In
light of the discussions over slow post-financial crisis recoveries, I would like to raise
three policy issues.
The first issue is to what extent central banks should consider the impact on thesupply side of the economy in conducting monetary policy. As a backdrop of the slow
recoveries following the global financial crisis, it has been pointed out that the interaction between demand and supply has gained importance. That is, the weakness indemand impairs the supply side mainly by discouraging workers from participating inthe labor market and dampening firms’ investment in capital stock and in research anddevelopment. Furthermore, a decline in expectations about future economic growth
may cause insuﬃciency of demand. That said, the conventional view takes the supply
side, such as the potential growth rate and the natural rate of unemployment, as a givenin the conduct of monetary policy. How would the mechanism of slow recoveries aﬀect
such a conventional view?
The second issue is with regard to what monetary policy tools are desirable under alow natural rate of interest. If the natural rate remains at a relatively low level over themedium to long term, compared with in the past, as suggested by the secular stagnation
thesis, then the nominal interest rate is likely to stay around zero. Furthermore, evenafter the normalization of interest rates, the nominal rate might fall back to zero or
to a very low level. In that case, would unconventional monetary policy continue tobe important even “beyond the exit”? Moreover, would it eventually be regarded asconventional in an economy under the “new normal”?
The third issue concerns the optimal policy mix for an economy undergoing
medium- to long-term stagnation with a low natural rate of interest. What would be
the best policy mix among monetary policy, fiscal policy, and structural reform in sucha situation? Are there any constraints to the implementation of the best policy mix,
such as mounting government debts or constraints under a common currency area?
What alternative mix of policies could be considered as a second best choice?

IV. Concluding Remarks
Every word and deed of central banks around the globe has been drawing more attention as the diverging directions of monetary policy among advanced economies becomeapparent. The issues I have raised so far are all complex, and there are no quick, definitive solutions for them. Nevertheless, I strongly believe that, at this one-and-a-halfday conference, we will address the issues we currently face and find our way forward
through lively discussions. I trust that many of you are familiar with the story of Peter
Pan, in which it says, “the moment you doubt whether you can fly, you cease forever
to be able to do it.” Yes, what we need is a positive attitude and conviction. Indeed,each time central banks have been confronted with a wide range of problems, they haveovercome the problems by conceiving new solutions. I am sure that we all can share a27

conviction backed by our collective experience and wisdom. I would like to close myremarks now as we ready ourselves for discussion.
Thank you for your attention.

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