period of time. given the current circumstances where the european sovereign debt crisis has been worsening, this lesson is particularly important to all of us. at the same time, we need to bear in mind that providing liquidity as “ a lender of last resort ” is, in essence, a policy to “ buy time ”. it is essential that the necessary structural reforms take place while time is being bought, as the time that we can buy becomes progressively more expensive. my second point concerns the conduct of monetary policy after a bubble bursts. monetary easing can affect the economy either through bringing forward future demand or bringing in overseas demand. in the former case, available future demand gradually decreases as monetary easing is prolonged. in the latter case, when economic growth in developed countries is generally weak, monetary easing in individual countries aiming at bringing in overseas demand may increasingly lead to a zero - sum game, which is not desirable for the sustainable growth of the global economy as a whole. such diminishing returns, however, do not release responsible central banks from the need to act. that is why, at the present time when short - term interest rates in major economies have declined to almost zero, central banks, including the bank of japan, have been making efforts to generate monetary easing effects by implementing various unorthodox measures to lower long - term interest rates and credit spreads. while central banks are buying time with these measures, it is still essential to pursue the necessary structural reforms. my third point concerns the paradox of success in the conduct of monetary policy. the goal of monetary policy is to achieve sustainable growth with price stability. this is a wellestablished principle that is shared in japan, the united kingdom and globally, regardless of whether an inflation targeting framework is adopted. the more successful the conduct of monetary policy is, however, the more stable prices become and the less volatility is seen in economic activity and financial markets. when the expectation prevails that a stable economic and financial environment will continue for a long period of time, it is likely to encourage leverage and maturity mismatches between the assets and liabilities of financial institutions. the greater the leverage and maturity mismatches are, the more exposed the economy is to a possible unwinding triggered by a given event, so the more fragile it becomes. the bursting of bubbles is the materialization of such fragility. before the global financial crisis, there was a debate over how to deal with bubbles, with one camp stressing ex

”, the causes of low growth in japan in the 1990s and 2000s were different and it is somewhat misleading to discuss the two periods together. in the 1990s, low growth was mainly brought about by the deleveraging associated with the unprecedented bursting of the bubble. in the 2000s and thereafter, the major causes of low growth in japan have been rapid population aging and population decline. for japan ’ s high growth period including a comparison with the current state of the chinese economy, see masaaki shirakawa, “ the transition from high growth to stable growth : japan ’ s experience and implications for emerging economies ”, remarks at the bank of finland 200th anniversary conference in helsinki, may 5, 2011. http : / / www. boj. or. jp / en / announcements / press / koen _ 2011 / ko110506a. htm for japan ’ s experience after the bubble burst, see masaaki shirakawa, “ way out of economic and financial crisis : lessons and policy actions ”, speech at japan society in new york, april 23, 2009. http : / / www. boj. or. jp / en / announcements / press / koen _ 2009 / ko0904c. htm bis central bankers ’ speeches regarding the impact of the bursting of the bubble in the first half of the two periods in question, i do not have much to add to what i have already explained. if i can point out one difference, the rise in the unemployment rate in japan was relatively limited ( chart 12 ). japan ’ s unemployment rate peaked at 5. 4 percent, significantly lower than the double digit figures reached in the united states and major european countries. this is attributable to the fact that wage levels were adjusted in a reasonably flexible manner, reflecting society ’ s preference to prioritize employment. that people ’ s jobs were preserved was a positive in terms of social stability. at the same time, it also had a negative consequence. wage levels were adjusted but not sufficiently for the magnitude of the shock to the economy, and a situation arose in which effectively unemployed people retained their jobs at companies. this delayed the necessary reallocation of resources to respond to demand and cost changes after the bubble burst. the decline in wage levels also contributed to deflation through a decline in the prices of services which are labor intensive. in fact, a significant portion of the inflation differential between japan and the united states reflects changes in service prices