Haruhiko Kuroda: Opening remarks - 2021 BOJ-IMES Conference
Opening remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the 2021 BOJ-IMES
Conference, 24 May 2021.
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I. Introduction
It is my great pleasure to welcome you all to our BOJ-IMES Conference. This is the 26th
conference, and for the first time in its history since 1983, the conference is being held online. On
behalf of the conference organizers, I would like to thank you all for your participation.
The theme of this year's conference is "Adapting to the New Normal: Perspectives and Policy
Challenges after the COVID-19 Pandemic." More than a year has passed since the outbreak of
the pandemic, during which time it has caused enormous loss and damage to people all over the
world. Finally, we are beginning to see the light at the end of this dark tunnel as effective vaccines
are being rolled out. It is at this juncture that our conference poses the following questions: what
will the so-called new normal look like that emerges after the pandemic? and, how are we going
to adapt to this new normal? These questions are the central theme of the conference.
As a starting point, I would like to provide some common ground for developing our discussions.
Specifically, I would like to focus on three issues: the economic perspectives, policy challenges,
and the nature of the post-pandemic new normal.
II. Economic Perspectives
A. Uneven Recession and Recovery
In considering the economic perspectives, let me begin by touching on the characteristics of the
recession caused by the pandemic and of the following recovery. Simply put, the most important
feature of both the recession and the recovery is their unevenness. Each recession is different,
but this time, the difference in the severity of the downturn among industries, business types, and
occupations has been particularly dramatic. People have changed their behavior under the
pandemic and in response to the containment measures. Demand for goods and services that
require in-person contact has plummeted. These industries have taken a huge hit and their
recovery has been slow.
The unevenness of the recession and the ongoing recovery could reinforce three trends that
have continued since around the global financial crisis of the late 2000s. The first trend is an
increase in saving. Against the backdrop of uncertainty over the course of the pandemic and
recovery, saving has increased substantially. The second trend is an increase in economic
inequality. The impact of the pandemic appears to be uneven and regressive, as the negative
impact has been more tilted toward low-income earners and young workers. There are therefore
concerns over an increase in income and wealth inequality. The third trend is an increase in debt.
Be it public or private, borrowing is essential to smooth economic activity and to mitigate the
negative impact of the pandemic. As a result of the necessary response to tackle the pandemic,
debt has been mounting in many countries.
The trio of increased saving, inequality, and debt is considered to be intertwined in practice and
may theoretically reduce the natural interest rate. Academic research on this topic is already
underway. Further research and discussion is to be encouraged to promote our understanding of
the new economy that will emerge after the recovery from the health crisis.
B. Structural Change
Besides these three trends, another important area to consider when we look at the
postpandemic economy is the underlying structural changes emerging in technology and industry
and the accompanying changes in the behavior of households and firms. Perhaps the most
important change we have seen during the health crisis is the wide and rapid spread of
digitalization. Many areas of the economy have been affected by the shift from in-person to online
activities. While the movement of people across national borders has almost completely
stopped, digital technology has removed geographical restrictions and eased the potential
economic downturn caused by the health crisis. New businesses that use digital technology
have been emerging in a wide range of areas.
Looking ahead, the important point is whether these structural changes lead to a wide-spread
increase in productivity in the economy, and whether the fruits of growth are widely shared
throughout the society. Advances in digitalization are expected to enhance productivity and
benefit a wide range of individuals and firms by promoting innovation and efficient resource
allocation. On the other hand, it is necessary to pay attention to the possibility that, if the fruits of
growth are concentrated in a small fraction of society and inequality increases, it may be difficult
to achieve inclusive economic growth.
III. Policy Challenges
Next, I would like to review the policy challenges facing central banks. There are two features
common to the policy responses implemented during the pandemic. The first feature is the
speed of the policy responses. Major central banks immediately provided massive amounts of
liquidity in response to the dislocations in domestic and foreign financial markets. By doing so,
central banks cut off the negative loop between financial markets and the real economy. We
have certainly made full use of our experience in the global financial crisis. The second feature is
the coordination of fiscal and monetary policies. While central banks provided liquidity lifelines,
governments strengthened safety nets such as income-support and job-retention measures. The
division of labor between fiscal and monetary policies has generated synergy effects and
contributed to preventing the economy from sliding into a free-fall.
Looking to the future, the challenges facing policymakers will likely change. The initial phase has
been liquidity support. This will likely change to solvency and corporate viability problems, and
then to resource re-allocation in response to structural changes in the economy. At the same
time, policymakers face the additional challenges of the economic inequality that has become
even more apparent during this health crisis, and the response to increasing worldwide concerns
over climate change. Likewise, the nature of the policy responses will also shift from temporary
first aid measures to medium- to long-term structural policies. To one degree or another, this set
of challenges is related to the stability of inflation, the real economy, and the financial system. In
this sense, we are seeing a widening in the scope of issues that central banks should take into
account.
IV. Adapting to the New Normal
So far, I have touched on the economic perspectives and on policy challenges. These factors will
in part shape the post-pandemic new normal, although exactly how remains to be seen. One
thing for certain, however, is that the world we live in will not be the same as that before the
pandemic.
After more than a year of living with the pandemic, we have seen a drastic change in the way our
society works. In particular, the expansion of digital technology has led to a fundamental
transformation in society, in ways that we could not have imagined. As I noted earlier, the shift
from in-person to online activities has taken place in all aspects, such as of work, business,
education, and health. Expansion in the areas of remote working, online shopping, remote
learning, and telemedicine is just a few examples. I myself have participated in many online
international meetings over the past year. I have benefited considerably from digital technology
that allows me to reach people in different places all over the world, all at the same time. Indeed,
it is thanks to the online format of this conference that I am able to welcome you all together
today.
Of course, there are two sides to any new technology, both positive and negative, and we cannot
ignore the importance of the kind of exchange that can only come through face-to-face
communication. In that respect, I do feel a certain ambivalence toward digital technology. And
yet, even after we have overcome the pandemic, a full return to the less digital pre-pandemic
world seems unlikely. Society has undergone irreversible change as it has adapted to the
pandemic by expanding and accelerating digitalization. By building on our discoveries and
experience during this health crisis, we should forge ahead and shape the new society and
economy - the new normal.
V. Conclusion
Over the past 15 years, we have been through two global crises: the financial crisis and the
health crisis. In addressing these two crises, cooperation among central banks, international
institutions, and academia has deepened further, and the theory and practice of economic
policies have evolved. In the current crisis, academic disciplines, including economics, have
made a significant contribution. Cross-discipline approaches are providing timely policy
suggestions, as, for example, through joint research in epidemiology and economics, or the use
of digital technology to analyze mobility data.
We are beginning to see the light at the end of this pandemic tunnel, but the light does not clearly
reveal the shape of the society and economy we are approaching. Therefore, the theme of our
conference, "Perspectives and Policy Challenges after the COVID-19 Pandemic," is going to
cover a wide range of issues. Given the considerable uncertainty we face, it is only natural that
we will have different views on the relative importance of the issues involved and the direction our
discussions should take. For the time being, we do not have to agree on all the details; the
important thing is for participants from central banks, international institutions, and academia to
present their views and share their ideas. Although we have only a few hours today and
tomorrow, it is very encouraging to be able to welcome representatives from various institutions
and from academia to participate in these discussions. I look forward to hearing a broad
spectrum of views and insights into the post-pandemic economy and policies.
Thank you.