masaru hayami : the role of japan amid the changing international financial environment speech by mr masaru hayami, governor of the bank of japan, at the executive board of directors ’ meeting of the japan foreign trade council, held in tokyo, on 7 june 2000. * 1. * * introduction thank you for inviting me to the 263rd executive board of directors ’ meeting. it is a great pleasure to have this opportunity to address such a distinguished audience. it also brings back memories of my days as one of the council ’ s executive directors and vice chairman under chairman mimura. your invitation today allows me to be here again, for the first time in almost ten years since i left the council to become chairman of the japan association of corporate executives. knowing that many of you come from trading companies which are active globally, today i ’ d like to share my ideas from the viewpoint of the role of japan amid the changing international financial environment. 2. tensions generated by globalization having previously worked for the bank of japan for 34 years, i had a chance to work in the then foreign department, our london office and other positions related to the bank ’ s international activities. it was a great experience for me to attend important international meetings such as the bis and the then g5 meetings. then, two years ago, i returned to the bank of japan as governor. now, representing the bank, i have a chance to again take part in various international meetings. attending such meetings, i have noticed two things. first, the number of international meetings has multiplied over the years. in this context, of particular note is that the presence of emerging - market countries, particularly the asian economies, has also increased. one reason for this is somewhat paradoxical in that since the asian currency crises of 1997, there is a consensus that the economic and financial stability of emerging - market economies is crucial for global economic and financial stability. indeed, the rise in the number of international meetings and participants evidences the extent to which economies are becoming globalized. the second thing i have noticed is that various kinds of tensions have arisen as the market economy has become more globalized. i clearly recall ngo activists surrounding the wto ’ s ministerial conference in seattle last december. the imfc meeting, which i attended in late april on the day after the g7 meeting, was also the target of similar protests. how can it be that the imf, a pivotal contributor to the development of the liberalized market economy after

the cpi is likely to be about 0 percent for the time being, but as the underlying trend in inflation steadily rises and as the effects of the decline in crude oil prices dissipate, it is projected to accelerate toward 2 percent – the price stability target. the timing of reaching around 2 percent, as i described earlier, is projected to be around the first half of fiscal 2016, assuming that crude oil prices will rise moderately from the recent level ( chart 9 ). the bank will continue with qqe, aiming to achieve the price stability of 2 percent, as long as it is necessary for maintaining that target in a stable manner. the bank will continue to examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate. strengthening growth potential of japan ’ s economy so far, i have described the developments in economic activity and prices, as well as the bank ’ s monetary policy. let me now touch on the challenges japan ’ s economy faces ; namely, strengthening its growth potential. japan ’ s potential growth rate has been on a declining trend since the 1990s ( chart 13 ). raising the growth potential is an important challenge for japan ’ s economy, and the government is currently undertaking various structural reforms. under the initiatives by the government, it is very encouraging that various regulatory and institutional reforms have steadily been implemented. that said, i would like to note two points. first, the current situation where the economic condition has been improving presents a good opportunity to push ahead with structural reforms. as the economy improves, the need for structural reforms and challenges to overcome is now clearer. for instance, many can easily understand that, in order to strengthen japan ’ s economic growth, it is important to bis central bankers ’ speeches shore up the labor participation of women and the elderly in view of the declining birthrate and aging population. however, this has not been recognized as a critical challenge under a high unemployment rate. as the economy improved and the labor market became tight, firms and people have started to recognize the supply constraint of the labor force, and measures have been taken to enhance the labor participation of women and the elderly. also, in the context of regulatory reforms, with firms and households becoming more proactive in economic activity, it will become clear which regulatory and institutional aspects have hampered economic activity. actual needs will become a powerful driving force in promoting regulatory reforms. second, i will describe the impact of structural reforms on the economy. structural reforms, in principle, are needed