haruhiko kuroda : the practice and theory of unconventional monetary policy speech by mr haruhiko kuroda, governor of the bank of japan, at the 17th world congress, hosted by the international economic association ( iea ), sweimeh, jordan, 7 june 2014. * * * introduction it is my great honor to have the opportunity to deliver a speech at the 17th world congress of the international economic association. the topic of this session, “ monetary policy in a post - crisis world, ” is currently one of the most critical topics for central banks around the world. following the global financial crisis triggered by the collapse of lehman brothers, the federal reserve ( fed ) and the bank of england ( boe ) introduced unconventional monetary policy measures such as quantitative easing and forward guidance, which in turn has given rise to a growing body of theoretical research on these measures. the bank of japan was the first central bank ever to adopt what is often referred to as unconventional monetary policy. in fact, the bank started pursuing various unprecedented monetary policies such as a zero interest rate policy and quantitative easing policy ahead of other central banks at the end of the 1990s, that is, prior to the global financial crisis. and although this is not widely known, it was the bank that first introduced forward guidance. therefore, in today ’ s speech, with the title “ the practice and theory of unconventional monetary policy, ” i would like to offer my take on the unconventional monetary policies pursued by the bank of japan, including the quantitative and qualitative monetary easing, dubbed qqe, introduced in spring last year, as well as the relationship between actual policies and theory. in concluding, i will touch on remaining challenges in the realm of monetary theory concerning unconventional policy. i. ongoing moderate deflation and the limits of conventional monetary policy in talking about the circumstances of why the bank adopted unconventional monetary policy ahead of other central banks, i have to start with developments in japan ’ s economy and monetary policy in the 1990s. at the start of the 1990s, japan experienced the collapse of its bubble economy and, associated with this, the deleveraging of financial institutions against the backdrop of a series of corporate failures and the impairment of financial institutions ’ balance sheets. during this adjustment process, a vicious cycle took hold, with worsening economic conditions, increasing nonperforming assets, declining prices, and yen appreciation mutually reinforcing each other. as a result, both economic growth and inflation declined. in 1997

factors, and are currently moving around 18, 000 - 18, 500 yen. in the foreign exchange market, the yen appreciated further against the u. s. dollar in late november, and is recently been traded in the range of 102 - 104 yen. with regard to corporate finance, private banks have basically retained their cautious lending attitude. however, constraint that had been caused by severe fund - raising conditions and insufficient capital base has eased considerably. under these circumstances, major banks are gradually becoming more active in extending loans, while carefully evaluating the credit risks involved. however, credit demand for economic activities such as business fixed investment remains weak. in addition, some firms have been trying to reduce debts using their on - hand liquidity. as a result, credit demand in the private sector has continued to be basically stagnant, and thus private banks ’ lending has remained sluggish. corporate bond issuance has been steady. meanwhile, cp issuance is increasing with the year - end approaching. the growth of money stock ( m2 + cds ) has slowed somewhat mainly due to the weakness in credit demand in the private sector. in this financial environment, the financial position of firms is easing, and the lending attitude of financial institutions as perceived by firms is becoming less severe. it continues to warrant careful monitoring how these favorable developments in corporate financing environment will affect economic activities.