margin if the yen swap costs are deeper in the negative. market participants attribute higher dollar premium to both demand and supply factors. on the demand side, japanese investors have shifted part of their portfolios into foreign currencydenominated assets following the qqe, which has boosted demand for dollars in the foreign exchange swap market. on the supply side, market participants point out that the lending attitudes of dollar providers have turned less accommodative ahead of the expected initiation of the fed ’ s tightening. furthermore, not a few participants attribute this development partly to stricter international financial regulations, but the validation of this claim requires further exploration. in sum, t - bill rates have been pushed down to a negative level because they gather investor demand for a number of technical reasons, while yen short - term interest rates have already been as low as a near - zero level across the board. in this sense, negative interest rates represent the very effect of powerful monetary easing under the qqe. market liquidity lastly, i would like to turn to the issue of market liquidity. as i pointed out, putting downward pressure on the yield curve by absorbing jgbs from the market is a factor comprising the core mechanism of the qqe. therefore, it seems fairly natural for the qqe to have certain impacts on price formulation and transactions in the market. meanwhile, since the introduction of the qqe, market participants have often raised a concern that the massive purchase of jgbs under the qqe will impair the functioning of the jgb market. we have been aware that such concern has mounted following the recent expansion of the qqe. in what way should we address such concerns? bis central bankers ’ speeches a complexity in this topic is that the term “ market liquidity ” could be used differently depending on the context. indeed, there is no established and exclusive definition of market liquidity. however, this definition by the bank for international settlements appears to be widely known and accepted : “ a liquid market is a market where participants can rapidly execute large - volume transactions with a small impact on prices. ” a quick look at a few indicators along this line gives a somewhat encouraging picture of market liquidity. transaction volume in jgb futures has been largely unchanged since the launch of the qqe ( chart 4 ). the ratio of daily price range to turnover, which approximates the price movement per transaction during the day, has remained stable at a low level, indicating

axel a weber : what role is economic and monetary union playing in mitigating the impact of the global crisis? dinner speech by professor axel a weber, president of the deutsche bundesbank, at the 964th wilton park conference, eltville - erbach, 17 march 2009. * * * introduction dear mr lamont, ladies and gentlemen it is a very great pleasure for me to welcome you all to this conference dinner in eltville. i hope that you are enjoying your stay at the bundesbank ’ s training centre. eltville is a nice place to be : it has a picturesque location in the heart of the rheingau region, which is well known for its mild climate throughout the year. eltville is called the town of wine, sparkling wine and roses. as regards the quality of the local wines, you will have the opportunity to taste them, especially here tonight in the baron knyphausen wine estate. as for the bloom of roses, you have certainly come too early. times are not rosy in general, however. indeed, we are currently experiencing a global economic crisis. what originally began as a crisis on financial markets has spilled over to the real economy in industrialised, emerging and developing countries. according to world bank estimates, the global economy is likely to shrink this year for the first time since the second world war. for the euro area, ecb experts expect gdp to decline by 2. 2 % to 3. 2 % this year. taking into account the fact that non - euro area eu economies are also expected to perform more or less poorly, the topic of this conference “ how can growth in the european union be restored? ” is indeed a crucial one. in my remarks, i would like to focus on the following questions. what is the impact of the financial crisis on european monetary integration and what role has emu and, in particular, the eurosystem been playing in mitigating the impact of the financial crisis? let me start with the second question. what role has the eurosystem been playing in mitigating the financial crisis? the central banks of the eurosystem are dealing in many ways with the effects of the financial crisis. they are participating in relevant international fora and organisations and are, albeit to a varying extent, involved in banking supervision issues at the national level, including rescue action for troubled financial institutions. this evening i would like to concentrate on two other major issues : liquidity operations and monetary