M a y 3 0 , 2 0 1 8
Bank of Japan
Opening Remarks at the 2018 BOJ-IMES Conference
Hosted by the Institute for Monetary and
Economic Studies, Bank of Japan
I. Introduction
Good morning. I am honored to welcome distinguished guests from academia and
central banks to the 24th International Conference hosted by the Institute for Monetary
and Economic Studies. On behalf of conference organizers, I thank all of you here who
have kindly taken time out of your busy schedules to participate in this
one-and-a-half-day conference in Tokyo.
The topic of this year's conference is "Central Banking in a Changing World." Over the
past few years, our conferences focused on monetary policy issues, yielding important
insights and suggestions for the conduct of monetary policy after the Global Financial
Crisis. This year's conference expands its scope from monetary policy to "central
banking," that is to say, central bank policies and operations on the whole. Behind this is
the fact that global structural changes in recent years influence not only central bank
policies such as monetary and prudential policies, but also central bank operations such as
the issuance of currency and the operation of payment and settlement systems, which
provide basis for the conduct of central bank policies.
As these changes span a wide range of areas, I think it is helpful to briefly outline recent
changes in the global economic and financial environment, especially which are deemed
important for central banks.
II. A Changing World and Central Banks
In recent years, the global economic and financial environment surrounding central banks
has changed significantly. Global trade activity has gathered strength again following
years of lackluster growth in the wake of the Global Financial Crisis. Against the
backdrop of the favorable global economic environment, investment activity by financial
institutions and other investors around the world has become increasingly active. Along
with these developments, economic and financial linkages between countries have been
strengthening. This increased interconnectedness is, of course, desirable for the global
economy, as it reflects ongoing globalization. But at the same time, partly due to the
recent dynamics of political economy and geopolitics, the size of global shocks has been
increasing, and the spread of global economic shocks has been presenting a great
challenge for central banks.
Regarding the conduct of monetary policy, changes in price and wage dynamics have
attracted keen attention in both academia and central banks, especially those in advanced
economies. As the adverse effects from the Global Financial Crisis subside, the
unemployment rate has dropped in many countries and the real economy has improved
substantially, partly due to the effects of large-scale macroeconomic policies. Despite
these improvements in the real economy, prices and wages have remained sluggish. This
phenomenon has recently been labeled the "missing inflation" or "missing wage
inflation" puzzle. Looking back on the discussions at our conference last year, adaptive
elements in inflation expectations formation were highlighted as a possible factor behind
the missing inflation. It is urgent that we explore the mechanism behind the changes in
price and wage dynamics especially in advanced economies.
Turning to the financial system, after ten years since the outbreak of the Global Financial
Crisis, the robustness of the global financial system has been enhanced through the efforts
of financial authorities, which include the finalization of Basel III, and those of financial
institutions to strengthen their risk management practice. However, it is necessary to pay
attention to developments in the so-called shadow banking sector, which is not
sufficiently covered by conventional supervision and regulations. Moreover, in recent
years, the low profitability of financial institutions, especially in advanced economies,
has come to pose a new challenge for global financial stability. As such, central banks are
faced with new challenges in terms of financial stability as well.
From a longer perspective, central banks are faced with an important challenge posed by
innovations in information and communication technology. We see remarkable progress
in a wide range of technologies, such as artificial intelligence, big data analysis, and
distributed ledger technology. We also see the rapid development of smartphones, social
network services, and e-commerce. The application of these technologies in the field of
financial business, typically dubbed "FinTech," has already brought about drastic
changes in the way payments are made in many countries. These developments are
expected to continue in the future, promoting further changes in business models at
financial institutions.
Of course, over the past several decades, central banks -- in their role as the "bank of
banks" -- have made various efforts to improve the safety and efficiency of payment and
settlement systems, for example by introducing real-time gross settlement, simultaneous
settlement of funds and securities, and simultaneous foreign exchange settlement.
Furthermore, with regard to currency issuance, a fundamental role of central banks, some
central banks are now exploring the possibility of issuing central bank digital currency.
Thus, in the long-run, an era of major transformation may lie ahead even in the core
operations of central banking, such as the "issuer of banknotes" and the "bank of banks."
III. Conclusion
In sum, central banks are facing new challenges both in terms of policies and operations
as a result of wide-ranging structural changes in the global economic and financial
environment. I hope we will have lively discussions on these challenges and their
implications at this conference.
Following my remarks, this year's Mayekawa lecture will be given by Professor
Raghuram Rajan of the University of Chicago. I am looking forward to learning from his
extensive knowledge of banking theory as well as his experiences as Chief Economist of
the International Monetary Fund and Governor of the Reserve Bank of India. For the
keynote speech, Professor Athanasios Orphanides of the Massachusetts Institute of
Technology, our new Honorary Adviser to IMES, will share his views on policy issues,
based on his experience both as a former central bank governor and an academic.
The paper presentations will focus on the four topics: (1) the sustainability of the low
interest rate environment under globalization, (2) the impact of the issuance of central
bank digital currency on the effectiveness of monetary policy, (3) the impact of
productivity changes on optimal trend inflation, and (4) the mechanism behind missing
wage inflation. The final and concluding session will be the policy panel discussion,
moderated by the IMES Chief Councillor Kazuo Ueda. As panelists, we welcome James
Bullard, President and CEO of the Federal Reserve Bank of St. Louis, and David
Ramsden, Deputy Governor of the Bank of England. I hope that this panel will help
deepen our understanding on "Central Banking in a Changing World" from both a
theoretical and a practical perspective.
Of course, compared with the wide range of issues to be discussed, our available time at
this conference -- one-and-a-half days -- might be too short. Based on this limitation, the
items in the program, especially the paper presentation sessions, are necessarily selective.
Nevertheless, by combining paper presentations, lectures, and panel discussions, I hope
that the conference as a whole will activate discussion from a variety of perspectives and
will deepen our understanding of the issues facing central banks.
Thank you for your attention.