takehiro sato : recent economic and financial developments and monetary policy in japan speech by mr takehiro sato, member of the policy board of the bank of japan, at a meeting with business leaders, kushiro, 2 june 2016. * * * accompanying charts can be found at the end of the speech. introduction thank you for giving me this opportunity to exchange views with people representing the political, economic, and financial communities of eastern hokkaido, including kushiro. i would like to take this opportunity to express my sincere gratitude for your cooperation with the activities of the bank of japan ’ s kushiro branch and obihiro office. in today ’ s speech, i will begin by focusing on recent economic and financial developments in japan and abroad, as well as the bank ’ s monetary policy. i will then touch briefly on the economy of eastern hokkaido. following my speech, i would like to hear your views on actual conditions in the local economy and on the bank ’ s conduct of monetary policy. i. recent economic and financial developments in japan and abroad a. global financial markets and overseas economies global financial markets - - which had been unstable since the turn of the year, affected by an interest rate hike by the federal reserve in december 2015 - - have been gradually regaining stability following the group - of - twenty ( g - 20 ) finance ministers and central bank governors meeting in shanghai ( shanghai g - 20 ) in late february. recently, crude oil prices have rebounded despite adverse factors such as the stalled negotiation among oil - producing countries over production cuts, while currencies and stock markets of emerging and commodity - exporting economies have generally been recovering. this situation may be described as a lull in the negative spiral of the strong dollar - - and the consequent strengthening of chinese yuan - - and the weak crude oil prices, which had increased the uncertainty of the future prospects of the world economy. the communique issued at the shanghai g - 20 indicated a consensus among the authorities of various countries on the need to deal with the economic slowdown not only by implementing monetary policy measures but also by taking every possible policy measure. as expectations have also spread that the pace of u. s. interest rate hikes will be moderate, a sense of relief appears to have gradually grown in the markets. even so, causes for concern remain. the problem - - posed by the financial market turmoil caused by the global financial crisis and the european sovereign debt crisis as well as its spillover effects

banking system towards good financial health. a sound corporate governance regime would seek to promote the highest standards of professional behaviour and integrity. policies should be implemented to prohibit any behaviour or relationship that diminishes its quality. this is very often evident in conflicts of interest, connected lending, which is not on an arms length, and preferential treatment to related parties. the independence of directors too is crucial where directors should have the ability to exercise objective judgement, regardless of board structures or ownership structures. well established corporate governance committees such as the board audit committee which oversees the bank ’ s internal auditors, with objectivity and independence, should 1 / 2 comprise of non - executive members of the board who have the requisite knowledge that is commensurate with the complex nature of the banking institution. independent, competent and qualified auditors is an essential pre - requisite of good corporate governance which would achieve a number of important objectives. it would ensure timely identification of risks and the publication of financial statements which accurately represent the financial position and performance of the bank. auditors should understand their duty to the bank and its stakeholders to exercise due professional care in the conduct of audits. in this connection, we have, in the recent past, strengthened the relationship of auditors with the regulator and the company to benefit from each others ’ capabilities, expertise and knowledge. basel ii has attempted to capture all these critical aspects into the new accord. a bank ’ s own assessment of its capital needs, coupled with the regulator ’ s assessment of the adequacy of capital, which would encompass all other aspects of its operations, apart from credit, would ensure adequate capital to insulate the bank against its risk exposure. after all, managing risk is fast becoming the single most important issue for the regulators as well as for the institutions that are regulated. therefore, basel ii is good news and we can only benefit mutually from its adoption. a roadmap is therefore already drawn up and we hope we can all commence our journey down this road to reach our goal of a safe and sound banking system resulting in financial stability which is what we all aspire. as you are all aware, our banking community is in the process of adopting the standardized approach within basel ii by 2007. however, the major challenge faced by the banks in the next few years, are the it, skills development and training that are required to implement the more advanced approach which relies heavily on quantitative techniques. it is imperative, therefore, that banks start