masaaki shirakawa : reviewing the economies of switzerland and japan remarks by mr masaaki shirakawa, governor of the bank of japan, at the 30th anniversary luncheon of the swiss chamber of commerce and industry in japan ( sccij ), tokyo, 10 october 2012. * * * before i begin, i would like to thank chairman thomas jordan for his detailed and informative presentation on the state of the swiss economy and the issues faced by the swiss national bank. i believe that everybody in this room would agree that we have learned a great deal. in the next five minutes, instead of commenting directly on what thomas has just explained, let me offer you some thoughts that come to my mind when i look at the swiss and japanese economies. switzerland and japan are very different. switzerland is land - locked. it is in effect an island in the sea of the european union, where about 60 percent of its exports are headed and 80 percent of its imports derive ( chart 1 ). japan is far more populous. the japanese economy is about nine times as large as the swiss economy. nevertheless, there are similarities. for example, both countries enjoy, or even suffer from, very stable prices. the average annual inflation, measured by headline cpi, over the twenty years from 1992 to 2011 was 1. 1 percent in switzerland and 0. 1 percent in japan ( chart 2 ). in august this year, the year - on - year change was – 0. 5 percent in switzerland and – 0. 4 percent in japan. consequently, interest rates are also low ( chart 3 ). in recent weeks, the yield on ten - year government bonds has been hovering around 0. 5 percent in switzerland, slightly below japan ’ s 0. 7 to 0. 8 percent range. both currencies, as thomas has explained, are at historically elevated levels. in this regard, the news media and the public are usually focused on a specific traded exchange rate between currencies, such as the swiss franc to the euro or the yen to the u. s. dollar. these rates are important, but there are additional indicators for exchange rates. in order to understand what would happen in an economy when exchange rates fluctuate, exchange rates for all the trading partners must first be taken into account. from this viewpoint, we must look at the nominal effective exchange rate, which is a trade - weighted index of exchange rates. in the case of switzerland and japan, compared with january

: we were encouraged by the progress firms have made. but there is still much more to do. we will give firm - specific feedback to participants, but key themes include : the need for more data on, and understanding of, customers ’ current emissions and transition plans. this can include looking through complex chains of financial relationships between clients and counterparties to see the underlying emissions. the need to invest in modelling capabilities and doing more to scrutinise data and projections supplied by third - parties. the need for some firms to consider more deeply how they would respond strategically to different scenarios, including thinking through the implications of different paths for climate policy. more generally these results bring home the fact that uncertainty around the impact of climate change – even given a pre - determined scenario – remains extremely high. as you will see if you read the report, the error bands around all these estimates are very wide. [ 13 ] this presents a challenge when considering implications for policy – and highlights the importance of continuing to plug the kinds of capability gaps i discussed earlier. as the results publication sets out, the bank will engage with firms individually and collectively to help them target their efforts, and share good practices identified in this exercise. implications for policy i hope it ’ s clear by this point that the cbes will be a valuable tool for helping us and financial firms to understand the challenges ahead. this exercise is not going to be used to set capital requirements for banks and insurers. but it clearly sheds light on that debate. the cbes results make clear that climate risk is a first - order strategic issue for the firms we regulate. but in my view it is not yet clear that the magnitude of transition costs require a fundamental recalibration of capital requirements for the system. [ 14 ] a persistent drag on profitability would be very nasty for firms, but so long as they are able to continue to make sufficient profits to maintain their capital buffers, its impact on safety and soundness might be less material. had the results of this exercise suggested a fundamental threat to the solvency of these firms, our response would of course have been quite different. set against that high level view, though, a world with climate change is without doubt riskier than one without. and so i see a number of challenges which underline the need for further work : to the extent that climate change makes the distribution of future shocks nastier, that could imply higher capital requirements, all else equal. so a key judgement will