masaaki shirakawa : toward strengthening the competitiveness and growth potential of japan ’ s economy speech by mr masaaki shirakawa, governor of the bank of japan, at the executive member meeting of the policy board of nippon keidanren ( japan business federation ), tokyo, 28 february 2013. * * * introduction it is a great honor to have this opportunity to address the executive member meeting of the policy board of nippon keidanren today. before i start, let me express my deepest appreciation for the information and views on current developments in economic and financial activities as well as on policy conduct provided to us by all the member firms. today ’ s speech is the last one i will give as governor of the bank of japan. however, it was not difficult for me to decide today ’ s main topic, “ toward strengthening the competitiveness and growth potential of japan ’ s economy ”, because it is the most pressing issue for japan at present. it is also a very important theme for the bank of japan. as you know, at the monetary policy meeting in january, the bank decided to introduce a “ price stability target ” and set it at 2 percent. 1 this target was introduced based on the recognition that progress would be made by a wide range of entities in their efforts toward strengthening the competitiveness and growth potential of japan ’ s economy ( chart 1 ). for this reason, it is extremely important in conducting monetary policy whether such efforts will actually make progress. in the following, i would like to talk about this theme while paying due regard to the perspectives of macroeconomics, corporate behavior, and economic policymaking. i. the aim of economic policy while there has been active discussion regarding the conduct of economic policies in japan, i will first consider the aim of economic policy and the kind of situation we expect japan ’ s economy to attain. needless to say, the ultimate aim of economic policy is to raise the living standard of each citizen. while there is no single indicator for gauging people ’ s quality of life, if we were to put this in approximate terms, the key aim of macroeconomic policy is to raise the per capita consumption level, or to raise the real gross domestic product ( gdp ), which is closely related to the former, in a sustainable manner ( chart 2 ). having said this, a more detailed discussion is necessary when considering the various options regarding economic policy on the basis of the situation facing japan ’ s economy. first,

is a demand for funds in that particular market. as the bank is trying to maintain the balance of current account deposits at unprecedentedly high levels, it should take advantage of such a demand for the smooth provision of funds. b. exchange of information through market operations the second implication of a trading party is that the bank and its counterparties exchange information. as is suggested by the term “ market intelligence, ” we may be able to obtain a variety of information and knowledge by carefully monitoring market movements. this is the reason why we request the counterparties to provide us with market information and analyses useful in conducting monetary policy. we conduct market operations daily, and the results of these operations are a very important source of information for us in gaining insight into the counterparties ’ assessment of our offers. of course, this is not a one - way flow of information. presumably the results of market operations offer the counterparties valuable information on overall market conditions, including insight into the action of other participating players. it may perhaps seem counterintuitive, but the results of market operations have come to play an increasingly important role, given the reduced number of transactions taking place in the money market. i would like to add that, as players in the same market, the bank and its counterparties in market operations should exchange information and ideas on how to improve the market infrastructure and make the market function more smoothly. concluding remarks my talk today has focused on technical aspects of market operations conducted under quantitative easing. it includes a number of issues that are of fundamental importance when thinking about the conduct of monetary policy. market functioning, which i touched upon, is one of these important issues. we at the bank will continue to exert every effort to enhance the transmission mechanism of monetary policy, while ensuring the smooth provision of funds within the framework of quantitative easing. we are closely monitoring the market for even the slightest change through various channels, including daily market operations. however, we believe it is major market players like yourselves who possess the most reliable information and insight into market conditions through direct dealing with a variety of customers. as we are now in uncharted territory for monetary policy, we appreciate your sharing with us your insight so that we can together navigate these waters safely.