Toshihiko Fukui: Bank of France - Bank of Japan: converging views
Opening speech by Mr Toshihiko Fukui, Governor of the Bank of Japan, at a joint symposium
of the Bank of France and the Bank of Japan, Paris, 8 January 2008.
* * *
I am very happy to welcome you today to this conference organised to celebrate the 150th
anniversary of Franco-Japanese diplomatic relations. Indeed, Franco-Japanese economic
relations are of particular interest to all of you.
The Bank of Japan opened its office in Paris in 1955. Since then, a large number of Bank of
Japan staff members - including myself - have established strong ties with France thanks to
the hospitality of the Banque de France and the pleasant atmosphere in Paris. I for one lived
in Paris for about two years and half in the early 1970s, at the time of the Nixon shock that
brought an end to the Bretton Woods system. The United States suddenly decided to
suspend the convertibility of the dollar into gold. It was a Sunday. I clearly remember the
efforts I expended during the talks with the Banque de France. What I learned in Paris is
invaluable as it was a key experience for a central banker.
The Banque de France counts a number of people with an in-depth knowledge of the
Japanese economy. Amongst others, I would like to mention Mrs Denise Flouzat, former
member of the Monetary Policy Council at the Banque de France, who will be chairing the
afternoon session. In 2002, she published a book entitled "Japan: eternal revival?", in which
she assesses the strong potential of the Japanese economy to overcome the economic crisis
at what was probably the worst time after the bursting of the financial bubble. The
subsequent development of the Japanese economy confirms Mrs Flouzat's perceptiveness.
In 2003, the year following the publication of Mrs Flouzat's book, I became Governor of the
Bank of Japan. This book has clearly had a considerable influence on the way in which I
have conducted monetary policy in Japan.
Both France and Japan have a very rich culture, underpinned by their long history. They
have established a constructive relation, learning from each other in many fields. For
example, in the field of art, a considerable number of painters, such as Léonard Fujita, have
studied oil painting in Paris. Conversely, illustrious impressionist painters, such as Claude
Monet, drew their inspiration from the Japanese etchings. Everyone knows that art in France
has been strongly influenced by Japanese culture. As regards gastronomy, there are now a
large number of Japanese restaurants in Paris. French cuisine has drawn on Japanese
cuisine, and vice-versa. Rather than simply perpetuate their traditions, Japanese and French
chefs seek to extend the realm of nouvelle cuisine.
Japan and France have established a particularly constructive relation in many economic
spheres. The two topics of today's conference are the Banque de France and the Bank of
Japan: construction and co-operation and the French and Japanese economies in a
globalised world. As an introduction, I will make a few comments on the co-operation
between the two central banks in the context of economic globalisation.
France has played a very important role from the start of the Meiji era in Japan in the mid
19th century, when the country became a player on the global economic scene. Thanks to
France's financial and technological assistance, a major shipyard and port infrastructures
were set up in the town of Yokosuka. This is one of the initiatives that marked the start of
Japan's co-operation with third countries in the process of industrial modernisation in Japan.
France also played a role at the time of the creation of the Bank of Japan. Mr Léon Say,
Minister of Finance at the time, advised Mr Masayoshi Matsukata, an influential member of
the Japanese government who was studying central banking in Europe, to refer to the
newlyestablished National Bank of Belgium. His contribution was highly significant. Later, when the
Bank of Japan was drawing up its statutes, the Japanese government drew on the statutes of
the National Bank of Belgium and the regulations of the Banque de France.
Economies have become increasingly globalised over the past century and a half. Recently,
the pace of globalisation has even accelerated. Borders are melting away and are no longer
an obstacle to economic activity. Franco-Japanese relations should not be looked at solely
from the angle of trade and capital flow statistics. It would be wiser to say that France and
Japan are two major intertwined economic centres on the global stage.
This globalisation process has a significant impact on the primary objective of a central
bank's monetary policy, which consists in ensuring price and economic stability. It is now
impossible for all central banks to assess the economic situation without taking a look at
global economic trends. In addition, the globalisation process in the area of financial
transactions is much faster and deeper than in trade in goods and services. If a shock occurs
in one country, it will immediately spill over onto numerous other financial markets.
In this context, central bank co-operation is becoming increasingly important. In fact, strong
ties have been established at various levels. I myself have continued to participate in the
Governors' meetings of the Bank for International Settlements, a discussion forum for central
banks. It is a pleasure for me to talk to Mr Noyer and other central bank governors at the
meetings, which are not only an opportunity to exchange information on the state of the
economy and prices, but also to tackle problems specific to each country and international
topics of common interest. I set great value on my colleagues' ideas and suggestions and
feel solidarity with them because we are bound by our common objective, supporting the
global economy.
At the same time, central banks seek to emulate each other, i.e. they seek to draw lessons
from each other's experience and endeavour to always adopt the best practices. In this
process, there is no patent. Actually, it is in our interest that all countries conduct an
appropriate monetary policy because it is a guarantee of global economic stability. This is
why central banks are committed to passing on their own experience.
For example, central banks have been striving to make their monetary policy more
transparent. Since the 1990s, central banks have achieved greater autonomy from the State
in a large number of countries and regions, including Europe and Japan. At the same time,
central banks are required to be more transparent and accountable for the conduct of
monetary policy. Increased transparency is important because it enhances the effectiveness
of monetary policy by anchoring the expectations of households, companies and financial
market participants. Having acknowledged the need for greater transparency, banks have
endeavoured to take the most appropriate measures to better explain their monetary policy
and better communicate with financial markets, taking into account the economic and social
situation of their country. To do so, banks have drawn on each other's experiences.
One fundamental issue is how to define price stability, which is the primary objective of
monetary policy. This involves striking a balance between the need for clarity and the need
for monetary policy flexibility. Each country has worked out its own solution to this tricky
problem.
A number of countries, including the United Kingdom, have adopted a policy of inflation
targeting, whereby the central bank sets a target inflation rate. In this case, measures are
adopted gradually to ensure sufficient flexibility. The European Central Bank, set up in 1998,
defines price stability in terms of the year-on-year increase in the Harmonised Index of
Consumer Prices and relies on a reference value for monetary growth. The Bank of Japan
adopted a new monetary policy framework in 2006. It publishes an inflation rate that reflects
the Policy Board members' understanding of medium- to long-term price stability. In line with
this understanding, we examine the most likely outlook and assess risks most relevant to the
conduct of monetary policy, which we call the two-perspective approach. In November 2006,
the FED published a series of measures aimed at enhancing its communication strategy.
One of them consisted in extending the economic and price forecasting horizon to three
years. A three-year inflation forecast shows the inflation rate that the Federal Open Market
Committee considers consistent with the objectives of the FED, i.e. price stability and
maximum employment.
These frameworks were devised by taking account of other countries' experiences and
retaining the most suitable elements for their own economy. I believe that, in this area,
central banks will increasingly draw on the experiences of other countries.
Countries share the same understanding of problems but at the same time stick to their
uniqueness when taking decisions. This holds true in the area of monetary policy but also in
numerous other areas within the evolving field of international relations. As in the case of art
and gastronomy, which I talked about at the start of my speech, mutual influences lead to
new innovations and blur borders through mutual understanding. This does not mean that we
lose our uniqueness.
In today's conference, we will take a look at the economic and financial growth patterns of
both France and Japan and examines in-depth the economic problems with which each
country is faced in the context of globalisation. I hope that it will give rise to a better mutual
understanding of both economies and foster further emulation.
Thank you very much for your attention.