masaaki shirakawa : great east japan earthquake – resilience of society and determination to rebuild remarks by mr masaaki shirakawa, governor of the bank of japan, at the council on foreign relations, new york, 14 april 2011. * i. * * introduction i am privileged to have the opportunity to speak before the council on foreign relations today. before beginning my speech, i would like to extend my heartfelt gratitude to the government and people of the united states for the support and encouragement concerning the tragic great east japan earthquake. the situation in the areas close to the earthquake epicenter, particularly coastal areas that were hit hard by the tsunami, is disastrous. the disaster claimed about 13 thousand lives and more than 15 thousand people are still missing. residents of areas near the fukushima daiichi nuclear power plant have been directed to evacuate, and are forced to spend restless days and nights in shelters. in this way, japan has faced a trying time since the earthquake struck. at the same time, however, japanese society has shown resilience. the work of rebuilding has started to get under way, gradually but steadily. in my remarks today, i will talk about the situation in japan in the month after the earthquake and the work being done to rebuild japan ’ s economy. ii. experience in the month after the earthquake a good place to start is what happened in the financial markets, the area i am familiar with. the earthquake struck at 2 : 46 p. m. on friday, march 11. at the time, i was being briefed by staff in preparation for the monetary policy meeting scheduled to be held at the beginning of the following week. even in tokyo, about 250 miles away from the earthquake epicenter, the shaking from the earthquake was the strongest that i had ever experienced and continued for more than two minutes. the earthquake ’ s magnitude at the epicenter was 9. 0, which makes it the largest on record in japan, and the energy released was enormous ( chart 1 ). based on previously formulated emergency procedure, the bank of japan immediately set up a disaster management team with me as head. this task was completed 14 minutes after the earthquake struck. the most important thing for a central bank during a crisis is to ensure the stability of settlement systems and financial markets. the bank of japan financial network system, or boj - net – japan ’ s core settlement system for funds and government securities – has been operating without any problems the entire time since the

the orderly unwind of not just a few of these structures and to avoid widespread contagion to other markets. effective risk management, therefore, now requires a better understanding of risks by the borrower and lender, the recipient and investor, as well as the supervisor. v. bsp ’ s policy responses these global forces necessitate action from central banks. this leads me to newton ’ s third law of motion, which states that “ for every action there is an equal and opposite reaction. ” a. monetary policy for the philippines, the first of the two forces i mentioned, i. e., increased global liquidity, poses a risk to bsp ’ s inflation target. if a force is threatening to alter the course of a variable under the bsp ’ s control, in this case, inflation, it is incumbent upon the bsp to act in order to keep inflation in check and the public ’ s inflation expectations well - anchored. let me briefly trace our monetary policy action during the course of this year, to see how we have responded to our assessment of the risk of global liquidity. the period december 2006 to may 2007 was marked by six consecutive months of domestic liquidity growth of more than 20 percent y - o - y. continued foreign exchange inflows from export receipts, foreign investments and of remittances fanned the surge in domestic liquidity. understanding that if unchecked domestic liquidity growth could stoke inflation, the bsp implemented additional liquidity management tools in may this year. these included the expansion of the coverage of entities that could access our sda window. indicators show that these tools are producing the desired effects as m3 growth has slowed down to below 20 percent in the last three months, with the latest figure at 14. 9 percent as of august. to improve the transparency of our monetary tools, the bsp implemented, in july, two complementary moves which effectively kept the monetary policy stance neutral. the tiering system on placements with the bsp was lifted and the bsp ’ s key policy interest rates were adjusted to 6. 0 percent for the overnight borrowing or reverse repurchase ( rrp ) rate and 8. 0 percent for the overnight lending or repurchase ( rp ) rate. just last week, the monetary board decided to reduce key policy rates by 25 basis points effective october 5, 2007. with the risk coming from liquidity moderating, benign inflation readings over the policy horizon provided room for