of the policy commitment could not have been achieved without market participants'confidence in the commitment. in this regard, the termination of the quantitative easing policy once the bank judged the commitment to have been fulfilled contributes to enhancing monetary policy transparency and in turn the effectiveness of monetary policy in the long term. putting this another way, if the bank had continued to conduct monetary policy in line with an operating target that had already essentially lost its effectiveness, this could well have caused not only increased uncertainty in financial markets but also damage to the transparency of monetary policy. v. conduct of money market operations for the immediate future in conducting money market operations in the immediate future, the bank will reduce the outstanding balance of current accounts toward a level in line with required reserves according to the new guideline for money market operations. it should be borne in mind, however, that as financial institutions have managed liquidity against the backdrop of large amounts of current account balances and extensive funds - supplying operations by the bank for a prolonged period under the quantitative easing policy, the functioning of the money market has been somewhat impaired. as a result, financial institutions may have difficulties carrying out smooth fund management. given these circumstances, the bank's reduction of the current account balance will be implemented taking full account of conditions in the money market. how long it will take for the bank to reduce the current account balance depends on the situation in the money market, but it is reasonable to expect the reduction to be carried out over a period of a few months. with respect to the complementary lending facility, which allows financial institutions to borrow short - term funds from the bank at their request up to the amount of the collateral they pledged in advance, the bank decided to keep the loan rate unchanged at 0. 1 percent, its level prior to the termination of the quantitative easing policy. this means that the uncollateralized overnight call rate, which will be effectively zero percent in accordance with the new guideline for money market operations, will basically not exceed this ceiling of 0. 1 percent even if it surges temporarily. reduction of the outstanding balance of current accounts at the bank will be managed through short - term money market operations. with respect to outright purchases of longterm japanese government bonds, these will continue at the current amounts and frequency for some time, with due regard for the future condition of the bank's balance sheet. vi. introduction of a new framework for the conduct of monetary policy following the latest mpm, the bank announced the introduction

toshihiko fukui : global imbalances and exchanges speech by mr toshihiko fukui, governor of the bank of japan, at the annual meeting of the world federation of exchanges, tokyo, 13 october 2004. * * * introduction ladies and gentlemen, it is an honor as well as a pleasure to be invited to the annual meeting of the world federation of exchanges, to offer some thoughts on recent developments in the international financial system. taking this opportunity, i would like to congratulate you on the tremendous success exchanges around the world are achieving in promoting trading of various financial instruments, and on the role your association has played in facilitating such developments. today, having just chaired this month ’ s first monetary policy meeting, i would like to briefly comment on the monetary policy of the bank of japan. the japanese economy continues to recover steadily, but mild deflation persists, reflecting factors such as increasing productivity. against this background, the bank of japan decided to maintain the so - called “ quantitative easing ” framework. for the rest of the evening, i would like to focus on a medium term structural issue that never seems to go away - global imbalances, and offer my views on what role exchanges will be able to play in meeting this challenge. global imbalances let me begin by briefly laying out how unbalanced the world is. at the beginning of this month, i attended a series of meetings in washington. those meetings were held in conjunction with the annual meetings of the international monetary fund and the world bank group, and included the meeting of the finance ministers and central bank governors of the group of seven countries. a common theme running through those meetings was surprisingly robust growth in 2004. the global economy is expected to grow by 5 % this year, which is the highest growth in 30 years. the above - potential growth would probably have to slow down next year, but the estimate given in the world economic outlook by the international monetary fund is 4. 3 %, still somewhat higher than the potential. against this relatively favorable outlook, we have identified some risks. after all, central bank governors are paid to worry. one risk is obviously the high prices of oil. i will not go into details of this issue today, because so much is written about it. another risk is global imbalances. the current account deficit of the united states reached 542 billion dollars last year. this is almost 5 % of the nominal gdp of the united states. for this year