toshihiko fukui : europe's single currency and japan's contributions to asian development speech by mr toshihiko fukui, governor of the bank of japan, on the occasion of dinner in the french embassy, tokyo, 11 june 2003. * i. * * fighting deflation i am very happy to be invited to speak at this euro 50 banquet. my relationship with europe dates back to thirty years ago. at that time, i was working for the bank of japan ’ s paris office. i vividly remember those days, especially when i took a walk in the streets of paris, painted with so much history, culture and esprit, and when i took a rest reading books in the relaxing atmosphere a la place des vosges. actually, i asked ambassador montferrant to look at a photograph i had taken there when he visited me recently in my office. i was appointed governor of the bank of japan three months ago. on the same day with my assuming office, the war in iraq started. as i will explain in more detail later, i am thinking that the globalization could be really fruitful, only if, on its process, we are able to overcome conflicts between different values and jointly to create new values. the outbreak of the war, however, seemed to expose the flip side of this process. moreover, it increased uncertainty in the world economy, and therefore i had to prepare myself for a rocky start in taking up my new duties. good news as you see, the iraqi war came to an end quickly and the accompanying uncertainty is now waning, but the situation remains to be difficult. the governments and central banks all over the world are far from being reassured that the economy will return rapidly to sustained economic growth. we at the bank of japan are waging a tough war against deflation. indeed, it is at the top of our policy agenda. i have spent a total of about 40 years working in the central bank and for virtually all of that period the emphasis has been placed on how to prevent inflation. however, both globalization and the advances in it have intensified the global trend towards disinflation and created a new awareness among central banks that they must deal symmetrically with both inflation and deflation. we at the bank of japan stand on the front line of the war against deflation. however, we have used up the greatest weapon in a central bank ’ s arsenal, that is interest rates, which have all declined to

of the economy, firms ’ returns on investment are expected to increase, and the current quantitative easing policy will therefore further promote their positive activity. the effects of the quantitative easing policy will support the economy more strongly as it continues to recover. with these points in mind, the bank has continued to conduct its quantitative easing policy with the commitment based on the cpi. the bank has been making efforts to make credit intermediation in the market more diversified and efficient so that monetary easing effects permeate further throughout the economy, and these efforts are expected to improve the japanese capital market in the long term. as part of such efforts, the bank started to purchase asset - backed securities ( abss ) from july 2003, and the total amount of abss purchased to date has reached around 800 billion yen. in addition, the bank hosted the workshop on securitization, and exchanged views about practical problems and possible solutions with market participants to back the development of the abs market. in april 2004, the bank released the results of the discussions held at the workshop, which contained specific proposals, for example, a proposal that prices of securitized products should be evaluated more accurately and efficiently. in may, the bank introduced a facility which provides the markets with japanese government securities ( jgss ) held by the bank as a secondary source with a view to enhancing the liquidity of jgs markets. the bank has been making a wide range of efforts to improve the infrastructure of financial markets and will continue to do so. iii. purchases of stocks held by commercial banks the bank started to purchase stocks held by commercial banks from november 2002 to reduce the risk that stock price fluctuations might impact negatively upon the business management of individual financial institutions, potentially resulting in instability of the financial system as a whole. the total amount of stocks purchased by the bank as of may 31, 2004 was 1, 979. 9 billion yen. conclusion japan ’ s economy is expected to continue recovering as it gains further momentum gradually. to ensure that this recovery will become sustainable and to overcome deflation, the bank considers it essential that a wide range of economic entities continue to make efforts to revitalize the economy. the bank is determined to firmly support japan ’ s economy by continuing with monetary easing even as the economy continues to recover, in order to realize sustainable growth and overcome deflation.