bank examines individual financial institutions in line with the policy in this document. for their part, individual financial institutions are expected to take appropriate measures in light of this published examination policy, thus contributing to the stability of the financial system as a whole. “ two perspectives ” of monetary policy now let me turn to the relation between monetary policy and macro - prudential policy. monetary policy does not directly reflect changes in asset prices or in the financial system. nonetheless, there is a common understanding among advanced economies that variables such as asset prices and bank lending contain important information that should be brought to bear on monetary policy decisions. since 2006, the bank of japan has adopted a framework for the conduct of monetary policy that consists of “ two perspectives ”. this means that the bank may respond to changes in asset prices or credit expansion under the “ second perspective ”, that is, if there is reason to believe that such changes are “ risk factors that significantly impact economic activity and prices ”. through this framework, while price stability remains the primary goal of its monetary policy, the bank is able to respond flexibly to any excessive accumulation of financial risk. in this regard, the bank ’ s monetary policy framework continued to provide appropriate monitoring of financial - sector risks in advance of the outbreak of the current global financial crisis. 2. in search of best practices in macro - prudential policy as the experience of the bank of japan suggests, there are a number of conditions that should be satisfied in order for macro - prudential policy to be effective. scope of monitoring – adequate information first of all, i would like to emphasize the importance of both micro - as well as macroinformation in pursuing macro - prudential policy. in many cases, financial crises are triggered by risk accumulation in individual financial institutions. moreover, most of the policy tools being discussed in the context of macroprudential policy, such as changes in the required capital ratio, loan loss provisions ratio or loan - to - value ratio, are intended to be applied to individual institutions. this means that it is all the more important for the central bank to have in hand adequate information from microperspectives, in order to pursue macro - prudential policy in an effective manner. here liquidity issues should also be duly emphasized. financial crises usually break out as liquidity crises. thus, it is absolutely necessary for the central bank to know where in the market liquidity tension exists, and who is under extreme tension, in order to

kiyohiko g nishimura : macro - prudential policy from an asian perspective speech by mr kiyohiko g nishimura, deputy governor of the bank of japan, at the highlevel seminar on macro - prudential policies, shanghai, 18 october 2010. * * * i am honored to have been invited to this prestigious conference, and particularly thrilled to have been given the opportunity to talk about macro - prudential policy from an asian, or more specifically, japanese perspective. this perspective is important in considering macroeconomic policy in general, and, in my opinion, all the more so given the current international discussions of regulatory reforms after the global financial crisis. in this short presentation, i will explain how the bank of japan has been actually implementing macroprudential policy to date, from this perspective, and the implications for the policy ’ s best practices. 1. japanese macro - prudential policy heightened interest in macro - prudence clearly reflects the severity of the recent global financial crisis, and the necessity to learn lessons from it. central banks have been asking themselves whether they paid sufficient attention to the risks being accumulated in the financial system before the crisis, when inflation was moderate and stable. regulatory authorities have come to regret a possible lack of concern in their policy perspectives, regarding the stability of the financial system as a whole. now, with deep deliberation, policymakers are focusing on macro - prudential policy to fill the gap between macroeconomic policies and micro prudential policies, so as to avoid any future large - scale financial crisis. here i would like to emphasize that, as a central bank, the bank of japan has a clear mandate to ensure not only price stability, but also financial system stability. under this mandate, the bank has been taking de facto macro - prudential measures since the 1990s. the bank of japan ’ s mandate with regard to the financial system is stipulated in article 1 of the bank of japan act. clause 1 of this article states that the purpose of the bank is “ to issue banknotes and to carry out currency and monetary control ”. furthermore, clause 2 of the same article states that the bank ’ s purpose is “ to ensure smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of stability of the financial system ”. thus, the bank of japan act clearly requires the bank to contribute to the stability of the financial system as a whole. to understand what should be done to fulfill