masaaki shirakawa : recent economic and financial developments and the conduct of monetary policy speech by mr masaaki shirakawa, governor of the bank of japan, to commemorate the 100th anniversary of the kanazawa branch, kanazawa, 25 may 2009. * * * introduction i am honored to have the opportunity to speak before business leaders in the hokuriku area today. i would like to express my deep gratitude for your close cooperation with the kanazawa branch of the bank of japan. in response to strong requests from three prefectures in the hokuriku area, the kanazawa branch was established in 1909 as the bank's first branch in the districts of honshu island along the japan sea. since then, the kanazawa branch has been operating in tandem with the development of the hokuriku economy, and this year the branch celebrates its 100th anniversary. the bank has 32 branches, including the kanazawa branch, and 12 local offices in japan. each of them conducts a variety of central banking operations, such as smooth provision of banknotes and coins, settlement of funds, treasury funds services, and research and analysis of financial institutions'business conditions and of economic and financial developments in the region. although these operations sound unspectacular, they constitute a part of the important infrastructure that supports financial and economic activity in each region. in fiscal 2008, the sum of receipts and payments of banknotes at the kanazawa branch was around 2 trillion yen – 200 million notes of 10, 000 yen bill. during the last 100 years, the kanazawa branch has strived to maintain an uninterrupted supply of banknotes in spite of occasional difficulties such as heavy snow and major earthquakes. we have renewed our determination to continue to fulfill our role of providing firm support for financial and economic activity in each region. i would like to express my gratitude again for your support and would like to ask for your continued cooperation with the kanazawa branch. before we exchange views, i would like to speak about the current situation of and outlook for the japanese and overseas economies and also about the bank's thinking regarding its conduct of monetary policy. i will mainly talk about economic and financial developments in japan and abroad from a macroeconomic viewpoint, but we do fully understand that the situation varies significantly for different regions and industries, and also for different sizes of firm. in fact, the bank gathers microeconomic information about industries and firms in

for example, bolstering foreign direct investment by japanese businesses in pursuit of higher profitability which would result in a surplus in the income balance. the real gdp increased by 0. 6 percent annually on average in the 2000s while, the real gni excluding the terms of trade gains / losses, an indicator comparable to the real gdp, grew more rapidly by 0. 7 percent ( chart 22 ). of related matters, the ratio of japanese foreign direct investment is notably lower than that in other advanced countries. room for increasing the ratio would be substantial ( chart 23 ). increases in the income balance surplus may require a renewed focus on gni, which summarizes the income earned by japanese people. finally, businesses can better reallocate their capital in line with the aforementioned three options to raise productivity. i have already referred to the growth rate of japanese labor productivity, and now i point out that the level of labor productivity is lower than that in other advanced bis central bankers ’ speeches countries ( chart 24 ). put differently, per capita income could increase substantially if businesses reallocate their capital to be better aligned with the efficient allocations. v. concluding remarks i have explained how demographic changes affect the japanese economy through various channels. in retrospect, up until the global credit bubble - burst, both academics and policy makers did not fully appreciate the significance of a bubble - burst. the japanese experience of a bubble - burst tended to be underestimated as an idiosyncratic episode. likewise, bystanders ’ apprehension about the ongoing demographic changes in japan may, i fear, be falling short of the mark. my sense is that full apprehension of the consequences of rapid population aging, coupled with the low birth rate, is yet to be seen in light of the importance of the issue. economics has dealt with the issue of population, not to mention a few examples such as, petty ’ s political arithmetic or malthus ’ s an essay on the principle of population. for the sake of economic policy formulation, basic research on demographic changes and their policy implications is indispensable. i hope that this conference would help contribute to the accumulation of such research. thank you. references fujiki, hiroshi, naohisa hirakata and etsuro shioji, “ aging and household stockholdings : evidence from japanese household survey data, ” paper presented in this conference. katagiri, mitsuru, “ economic consequences of population aging in japan : effects through changes in