toshihiko fukui : a tale of two cities in the eyes of a central banker remarks by mr toshihiko fukui, governor of the bank of japan, at japan society, new york, 6 january 2005. * 1. * * introductory remarks it is a pleasure to address this eminent audience of japan society. before i proceed any further, i would like to offer my deepest condolences to all the people affected by the earthquake in indonesia and the tsunamis that followed it. though we are far away in new york from the tragic events in the indian ocean, i hope that we could do everything within our capacity to help our sisters and brothers in distress. tsunami happens to be a word derived from japanese, and japan has in fact suffered from many tsunamis in the past. though tsunamis are not necessarily made in japan, i believe that we could share our experiences with the world. the purpose of my visit to new york in this frigid season is to commemorate the 100th anniversary of the bank of japan ’ s representative office. some of you might feel disinclined to listen to me, as central bankers tend to harp on the same string. but i can assure you that my speech here will prove to be a lot warmer and more humane than the freezing air outside. ladies and gentlemen, the world economy is in fact a lot warmer than a year ago. this is true of japan ’ s economy too. indeed, the fundamentals of japan ’ s economy have visibly improved during the past few years. the basis for renewed momentum is emerging in both the corporate and financial sectors, putting the current recovery on a stronger footing than the last two recovery phases in the 1990s. the corporate sector has come a long way in its adjustment efforts to eliminate past excesses, and is working actively to devise new business strategies in this globally competitive environment. the financial sector, having made great strides in reducing non - performing loans ( npls ), seems better prepared to provide innovative services, going forward beyond this april when the blanket protection of deposits is removed. in a nutshell, japan ’ s economy has virtually regained health that it lost a decade and a half ago. on the prices front, economic recovery has tended to slow deflation during the past few years. as productivity growth accelerates and unit labor cost ( ulc ) declines, however, linkages between economic growth and prices seem to be becoming a little tenuous in recent years. it is against this

cultivating a mutually beneficial relationship on the one hand, while preventing possible misunderstandings from developing into confrontations on the other. as i mentioned at the outset, the bank of japan was engaged in founding japan society. to say a few words on “ pre - history, ” the russo - japanese war ( 1904 - 05 ) prompted japan to tap international capital markets to secure the war chest. as part of this effort, the bank of japan decided to station an executive auditor each in london ( 1904 ) and new york ( 1905 ), two international financial centers, to supervise the issuance of foreign currency sovereign debts of japan. this marked the formal inception of our new york office. since then the new york office has played a significant role in establishing solid relationships with the us financial authorities and banking communities. japan society saw its membership ballooning from 250 at the end of 1907 to over 1, 300 at the end of the 1920s. but in the dark 1930s when military tensions between our two nations escalated, its activities were severely constrained. similar hardship fell upon the bank of japan, leading up to the temporary closure of our new york operations in 1941, following the us government ’ s decision to put a freeze on japan ’ s assets in america. japan society also virtually stopped activities in 1942. the rebirth of japan society following world war ii began around 1946 and became active when mr. john rockefeller the 3rd became president in 1952. it is a testament to his foresight that he rebuilt japan society, which contributed greatly to bringing our bilateral relationship back on a viable path towards friendship and mutual respect. in a similar vein, the bank of japan re - opened its new york office in 1950. 2. financial sectors in the us and japan having reflected on the history of japan society and the bank of japan, i am becoming more uncertain whether i am speaking as a central banker or simply as a friend of yours. being a careered central banker, however, i should perhaps begin to focus on the developments that have taken place in the financial sectors of both our countries. it is often pointed out that japan is different from the united states. this view is voiced not only in japan but also in the united states. some argue, again on both sides of the pacific, that japan is a unique country. i am always amused to hear it, because every country is different, and every country is unique in my opinion, just like everyone in this room is unique. there is always a japanese way of business like there