’ s financial market into an international financial center, and for the innovative policy stance the hkma has taken. v. closing remarks as time is running out, i would like to conclude my speech. the future of the global economy is currently fraught with uncertainty, and we are facing a variety of challenges. for both hong kong and japan, whether our economies will be able to take a desirable path depends significantly on global economic developments. from the perspective of the outlook for the global economy, i have raised three issues today, namely balance sheet adjustments in advanced economies, growth potential of emerging economies, and debates on currency conflict. the exact nature of these issues will change considerably, depending on the policy responses of each jurisdiction. it is therefore important for policy authorities around the world to promote better understanding and to cooperate closely with each other. over the past decades, the world economy and financial markets have in fact been moving steadily towards globalization. however, at the same time, it is also true that we are still far away from perfect globalization. as typically observed in debates on currency conflict, the variety of challenges we are facing may reflect the complex reality of the global economy. nevertheless, we need to make efforts to resolve these challenges. in this regard, the growing number of voices calling for reform of the international currency system seems to me a welcome development. at the same time, however, it is unrealistic to expect that such difficult challenges can be resolved in a short period of time. what is most important at this moment is the sincere commitment of each jurisdiction to learn the lessons of what others have experienced. there is much to be learned from this experience, particularly on issues relating to the formation and the bursting of bubbles, and on policy responses to financial crises. moreover, it is important for us to exchange frank views on the challenges we are facing. while listening to recent debates on currency conflict, i am often reminded of the word “ sympathy ” as used by a great economist adam smith in his first but continuously revised book, “ the theory of moral sentiments. ” what we need most fundamentally at this juncture is “ sympathy ” with each other, in smith ’ s meaning of the term, bearing the situation of other economies in mind. i believe the current “ two - speed recovery ” presents a perfect example of the importance of such “ sympathy. ” we, the bank of japan, cooperating with other central banks and monetary authorities, should put all our efforts into ensuring sustainable economic growth under price

way of ensuring that 2 7 per cent remains the long - term anchor for price - setting and wage formation in the economy. in the same way that high inflation risks affecting economic agents ’ long - term inflation expectations, too low inflation also risks doing so. since nominal interest rates include compensation for inflation, these rates will on average be lower, the lower the average and expected rate of inflation is. moreover, there is an effective lower bound for the policy rate, where the positive effects of further cuts cease and the negative ones begin to dominate. the combination of a low average interest rate and a lower bound for the policy rate means that the scope for cutting the interest rate will be limited. 9 monetary policy ’ s ability to stimulate the economy in serious economic downturns, when this is really needed, will thus be reduced. the fact that monetary policy has sufficient scope to do this is of course important, but it is perhaps not something that people notice in their everyday lives, in the same way that they notice if prices rise in the shops. it is worth pointing out here, which i often and willingly do, that if one thinks that it does not matter that inflation on average is below 2 per cent and at the same time dislikes a zero or negative policy rate – which seems to be a fairly common combination of views – then these are two arguments that contradict one another. if average inflation is below 2 per cent, then a zero or negative interest rate will inevitably become even more common. as inflation today is far too high, this discussion has for the moment disappeared from the agenda. however, as i said earlier, it is not impossible that we might return to a situation in a couple of years where it will reappear. a good and a bad scenario the present economic policy frameworks thus provide favourable conditions for returning to the inflation target within a reasonable time perspective. and there is no doubt that the riksbank has the tools required to achieve this. when it comes to raising the policy rate, there is no upper bound in the same way as there is a lower bound. of course, interest rate hikes are associated with costs too, but the difficulties of bringing inflation back to the target are not about binding restrictions but about how quickly this can reasonably be achieved. even if considerable strains might be imposed on the real economy during the process, there is no doubt that we will do what is necessary to meet the inflation target. this has to do with the fact that the development