Remarks at the Event to Commemorate Thirty Years
of Banca d'Italia in Japan
Speech by Ignazio Visco
Governor of the Bank of Italy
Thirty Years of Banca d'Italia in Japan:
Anniversary Celebration
Tokyo, 11 June 2019
Governor Kuroda, Ambassador Starace,
Distinguished representatives of Japan's authorities, of the financial and corporate
sectors, of academic and research institutions, and members of the Italian, European and
international communities in Tokyo,
I am delighted to welcome you all this evening, and to see several personal friends
among you, as we celebrate the 30th anniversary of the establishment of Banca d'Italia's
Tokyo Representative Office, which was officially inaugurated on January 27, 1989 by
Governor Carlo Azeglio Ciampi, in the presence of the Bank of Japan's Governor, Satoshi
Sumita.
A special word of welcome goes to those of you who also attended that event.
Like the Bank of Japan and other central banks around the world, the Bank of Italy has
long recognised the value of a stable presence in major international financial centres,
for liaising with local authorities, disseminating information on and analyses of the
respective economies, and for closely monitoring market developments. The Bank's first
'Delegation' - as our foreign offices were, and still are formally called - was opened in
London in 1917, soon to be followed by the New York Office.
Our interactions with Japan's monetary and financial authorities had, of course, been
under way well before the opening of our Tokyo Office. As Governor Kuroda recalled, in
1962 Paolo Baffi, then senior deputy governor (Direttore Generale) of the Bank of Italy,
came to Japan to deliver a series of lectures on international monetary policy, widely
followed by officers from Asian central banks, thus setting strong foundation to future
closer relations between our two institutions.
What I would like to remember today, however, is another episode that significantly
enhanced this relationship.
In late 1971, Giorgio Carducci and Tommaso Padoa-Schioppa - two young Bank
of Italy officers working in our Research Department - were dispatched to Japan for a
study mission by the then Governor Guido Carli, and at the suggestion of the Head of
the Research Department, Carlo Azeglio Ciampi - later to become through the years,
Governor of the Bank, Prime Minister, Minister of Finance and President of the Republic.
Their task was to analyse the financing model of Japanese industrial expansion, and
especially the role played by banks in funding capital accumulation, an issue of particular
importance for Italy's economic development. Indeed, this was a situation Italy shared at
that time with Japan, and the banking channel is still today the main source of financing
for Italy's predominantly small and medium-sized enterprises.
The mission lasted two months and enjoyed the generous support of the Bank of
Japan, which went well beyond the already high standards set by the world-renowned
omotemashi of the Japanese people: Governor Sasaki assigned an office at the Bank of
Japan to Messrs. Carducci and Padoa-Schioppa throughout their stay, and they were
constantly assisted by the Bank's officers, who arranged most of the meetings with other
institutions. As Carducci and Padoa-Schioppa noted in their final report, 'without that
precious collaboration, it would have been impossible to conduct the research so rapidly
and comprehensively'.
The report compiled by Carducci and Padoa-Schioppa offered a synthetic but
thorough description of the real, monetary and financial sectors of the Japanese
economy at that time. It was published in Italian the following year, contributing to a
better understanding in Italy of the foundations and structural features of Japan's own
'economic miracle' (a term we use when talking of Italy's resurgence from the ashes of
World War II in the 1950s and 1960s).
A further important step in the direction of extending our interactions with the
Japanese monetary and financial system was taken in 1985, with the secondment of a
senior Bank of Italy officer as a Financial Attaché to the Italian Embassy in Japan. Today,
besides our three Representative Offices there are 14 financial attachés seconded by the
Bank to Italy's Embassies, covering almost sixty economies around the world.
With the opening of our own Office in Tokyo in 1989, our presence in Japan was
definitely strengthened, and we have since maintained a high level of cooperation with the
Italian Embassy, thanks to the efforts over the years of its heads: Mr Rosario Bonavoglia,
Mr Sandro Appetiti, Mr Pietro Ginefra and the current one, Mr Angelo Cicogna; and, of
course, of the Italian Ambassadors.
The Office has greatly benefited from our Japanese partners' forthcoming attitude
and constant support. The frequent exchange of views with the Bank of Japan, as well as
with the other financial authorities, and members of the academia and the private sector,
has provided us with extremely useful input for our own analyses and policy decisions.
It is important to underline that the activity of our Representative Office is not
confined to maintaining a fruitful collaboration with Japan's authorities and financial
institutions. It also provides an important contribution, through research and analysis, to
our understanding of Japan's economy and its fundamental role in Asia and in the world.
I benefited too from the valuable support of the Italian Representative Office in
Tokyo, not only as a Bank of Italy manager, member of the Board and Governor, but also
during my missions to Japan when I was the OECD's Chief Economist during the difficult
years of the Asian financial crisis.
* * *
This cooperation and exchange of views with Japanese authorities and experts has
proven beneficial in the past. It will perhaps matter even more in the future, given the
challenges that our countries are facing, ranging from navigating a difficult international
environment to adjusting to a rapidly ageing society and the spreading of new
technologies.
Over the last thirty years, the world economy has undergone a profound
transformation. Favourable geopolitical developments have combined with spectacular
advances in information and communication technologies to spur unprecedented
global economic and financial integration. The impact on economic growth and social
development has been no less impressive. During this period, the volume of international
trade has more than quadrupled, contributing to an almost three-fold increase in global
output.
While our two countries have benefited from these developments, they have
also seen a sharp slowdown in the pace of economic expansion and the emergence of
structural impediments that are largely shared by our two economies. Sluggish growth,
adverse demographic trends and soaring public debt are challenges we have in common,
and the adequate policy responses needed to meet them might be partly based on each
other experiences and best practices.
The prolonged periods of subdued growth that Japan and Italy suffered since the
early 1990s have been driven by a deceleration in productivity, a phenomenon common to
many developed and developing nations but more marked in the case of Japan and Italy.
In Italy we observed a substantial delay in responding to the significant changes brought
by globalisation and technological progress. This delay was exacerbated by the difficulties
of small and medium-sized enterprises in innovating and adjusting their governance
systems. These factors accompanied the long period of adverse cyclical conditions that
followed the global financial crisis and the associated progressive reduction in the entry
and exit dynamics of firms. Corporate sector governance and the efficient reallocation
of capital in the business sector have often been at the centre of attention in Japan too.
Demographic developments contribute to a better understanding of the subdued
economic performance, especially in Japan, where the problem of an ageing population
emerged earlier. According to UN population projections, in Italy the ratio of people
aged 65 and above to the working age population (20-64) is currently about 38 per cent
and projected to exceed 72 per cent by 2050; in Japan it is already above 46 per cent and
is estimated to rise to almost 78 per cent by 2050. Life expectancy at birth is currently
over 82 years in Italy (15 years longer than in 1950) and close to 84 in Japan (20 years
above the 1950 level); in both countries it will exceed 87 years by 2050.
Japan and Italy are therefore frontrunners in facing the economic and institutional
adjustments demanded by this demographic transition, which is unprecedented and has
far-reaching implications in terms of productivity growth, the balance between saving
and investment, pension requirements and long-term care. There are clear implications
here for public finances and asset markets.
Mechanical extrapolations of population trends show that a shrinking labour force
will exert a significant drag on potential output over the next thirty years for both our
economies, even taking into account possible mitigating effects, such as those stemming
from immigration.
With respect to the old-age related spending borne by public finances, both Italy
and Japan have intervened on pensions, even though their increase in the past twenty
years has been substantial and is not going to decline for years to come. Additional
funding needs will arise from the health care system. Taking also into account
nondemographic drivers (such as the effect of technological progress), outlays related to
health and long-term care are projected to rise significantly. As Japan and Italy have two
of the highest public debt-to-GDP ratios among advanced countries, there is very little
fiscal space to accommodate these trends.
Slow productivity growth, ageing and high public debt are three interrelated
challenges which require a comprehensive policy response. The demographic
developments under way and the need to ensure sustainable public finances emphasise
the importance of boosting productivity growth.
It must be recognised that advances in medical sciences and improvements in living
conditions have moved the threshold forward considerably of what used to be called 'the
third age': as the positive experience of Japan illustrates, senior citizens can be engaged
in productive activities, including the provision of all-important community services.
Moreover, adequate social policies can encourage a much higher participation of women
in the labour force, especially in Italy.
Policies to promote innovation and investment in new technologies are crucial. At
the same time, as technological progress advances further, taking advantage of its great
economic opportunities will require paying close attention, in particular, to the changes
implied for the qualitative profiles of labour demand. Appropriate plans will need to be
drawn up and consistently deployed to retrain workers, invest in education, fight poverty
and inequality, lest these powerful transformational forces undermine social cohesion.
Supporting technological innovation, and its efficient diffusion throughout the
economy is key to obtaining sustained increases in productivity in the longer term, and
to safeguarding the living standards of future generations, as well as the sustainability
of our countries' social security systems and public finances. Nevertheless, it is essential
to take into account the effects on the nature and quality of available jobs, which will
stem from the extant technological revolution that is proceeding with unprecedented
speed and is wide ranging, from automation to digitalisation, from robotics to artificial
intelligence.
In this respect Japan appears to be better positioned than Italy in some key areas. First
and foremost, the quality of its human capital: in Italy only 27 per cent of the population
aged 25 to 34 has completed tertiary education, while in Japan this percentage is as
high as 60 per cent. Italy and Japan also stand at opposite extremes as regards the
older working population: in Italy the percentage of people who have completed tertiary
education in the 55-64 age group is the lowest among the G7 countries while Japan has
one of the highest. Japan also has a significantly higher R&D expenditure to GDP ratio.
These differences help to explain the fact that the contribution of total factor productivity
to output growth has remained positive in Japan (although at much lower levels than in
the years before the 'lost decade'), while in Italy it has been negative on average since
2000, only recently showing a weak recovery.
Policies to safeguard the benefits of technological progress should go hand in hand
with a firm commitment to international integration: it would be a serious mistake to
believe that disengaging from global responsibilities could make it easier to achieve
long-lasting benefits at home. It is unfortunate that in many respects we have recently
observed a deterioration of international relations, with the multilateral, liberal world
economic order that presided over many post-WWII developments starting to falter with
the emergence of new players and the pressures of new protectionist tendencies.
To be sure, international economic relations need to be based on generally accepted
rules, which protect legitimate rights and ensure a level playing field for all parties. The
system of multilateral regulations and supranational institutions which has provided that
framework, supporting global economic development in the post-war era, is now facing
serious difficulties, against a backdrop of significant differences in the political systems
and economic models of key trading nations. This is making cooperation more complex,
but by no means less necessary for the common good, a conviction that Japan and Italy
both share.
Critical issues for the future well-being of all nations, such as the environmental
sustainability of economic development, can only be managed through joint actions,
which leverage scientific research and already available technology to ensure that growth
does not come at the expense of the environment. Japan's contribution in this direction
has, of course, been essential, as it presided over the adoption of the historical Kyoto
protocol in 1997. We may also recall the alarm already raised in the early 1970s by the
'Club of Rome', with its report, 'The Limits to Growth'.
* * *
We are facing strong headwinds, as Japan knows only too well, being the acting
President of the G20 this year. Thorough discussions on all these points took place at
the G20 meeting of Finance Ministers and Central Bank Governors held in Fukuoka a few
days ago. Indeed, Japan has had the merit of putting at the centre of the agenda those
topics that are today acknowledged as being central to global economic prospects, such
as ageing, technological development, the need for high-quality infrastructure and a
broader health care coverage in developing countries.
Italy will take the helm of the G20 in 2021 and I am sure that the path taken by Japan
will be both an important legacy and a hard example to follow. In this essential collective
endeavour, we know we can count on the full support and determined actions of Japan,
which, as president of the G20, is making an important contribution to reaffirming the
value of multilateral cooperation for the world's shared prosperity.
There is clearly no shortage of opportunities, including in our own domains of
central banking and financial supervision, to continue working with our Japanese friends,
and build on the excellent cooperation that our Tokyo Office has contributed to over the
last thirty years.
As Japan enters its REIWA era with a spirit of renewed confidence, we very much look
forward to extending that rewarding partnership for the next thirty years and beyond.
Thank you. Grazie. Doumo arigatou gozaimasu.