may 27, 2019 bank of japan global economy : challenges and policy responses keynote speech at the t20 summit haruhiko kuroda governor of the bank of japan introduction it is a great honor for me to deliver this keynote speech at the t20 summit. this year, japan assumes the g20 presidency for the first time. the g20 finance ministers and central bank governors meeting in fukuoka is fast approaching. i will be co - chairing the meeting with deputy prime minister and finance minister aso. we will be discussing various key issues regarding the global economy and finance. the t20, as an international forum for think tanks, has also debated a wide range of issues on the global economy, along similar lines to the g20 discussions, and has provided policy proposals. i believe those proposals from think tanks, with their expertise and unique viewpoints, provide valuable input for public sector policy management. needless to say, it is important that the private and public sectors exchange views, learn from each other, and engage in constructive dialogue, in order to provide and implement better policies. today, i would like to talk about the challenges and policy responses to the current situation in the global economy, hoping that my speech will contribute to the discussions at the t20 summit. specifically, i would like to elaborate on the medium - term challenges such as global imbalances and international financial architecture. before going into those issues, let me begin with recent developments in the global economy. i. recent developments in the global economy the global economy registered high growth up to the first half of last year, but it has decelerated since then, particularly in china and the euro area. several factors account for this deceleration. first, there has been increased uncertainty regarding economic policy on a global level such as trade tensions and the brexit negotiations. this has put downward pressure on corporate investment and international trade in capital goods. second, at the same time, the so - called silicon cycle has entered a downturn, something we have observed many times in the past. until the first half of last year, there was a claim that the " super - cycle " in demand for semiconductors was on a rising trend. according to the claim, semi - conductor demand would increase steadily over the medium term. however, as was seen in the past, there have been some cancellations of multiple orders for parts and capital goods, together with downward revisions to final goods such as smartphones. in addition to these

along the way, there will be a gradual reduction in our financial stability risks, such as household imbalances. this is a natural sequence that we will monitor carefully. its starting point, and the most critical ingredient, is a substantial recovery in exports. where will that critical revival of exports come from? well, energy exports are already leading the way. this is the main source of natural growth in our economy today – new energy exports, new investment, new jobs. furthermore, higher oil prices are boosting incomes across the entire country, and that creates jobs, too. but growth in energy exports alone cannot make up for the loss of exports we have experienced since the crisis. non - energy exports also will contribute, but they have been very sluggish for several years, at least until recently. after a weak start to the year, there has been a surge in non - energy exports in the past few months. about half of this rebound was weather - related, as exports were delayed during the winter. but underneath these fluctuations we are starting to see some early signs of recovery. the fact is, though, that the global economy remains an uncertain place and, as forecasters, we are wary of the serial disappointment it has delivered us in recent years. europe is obviously the biggest question mark. nonetheless, the u. s. economy appears to be back on track and is now showing signs of higher investment spending, which is usually associated with stronger exports of canadian machinery and equipment, packaging materials, industrial materials, and business services. many of these sectors are also sensitive to exchange rate fluctuations, so the lower dollar is providing an additional boost to foreign sales. certainly, we should expect to see our forecast coming true right here in drummondville, as this has always been an export - intensive part of the country. companies here are investing to diversify their product lines and their customer bases and are positioning themselves for new growth. we now see the region ’ s traditional focus on textiles and furniture giving way to a broad range of technical, value - added manufacturing in machinery and equipment, building and packaging materials, and plastic and rubber products – some of the very sectors we expect to see leading our export recovery. nevertheless, some other export sectors have been struggling since well before the financial crisis. for them, the restructuring road is proving long and difficult, so some of the lost ground may only be made up over an extended period of time. we can also expect to see brand - new export activity from