masaru hayami : the role of japan amid the changing international financial environment speech by mr masaru hayami, governor of the bank of japan, at the executive board of directors ’ meeting of the japan foreign trade council, held in tokyo, on 7 june 2000. * 1. * * introduction thank you for inviting me to the 263rd executive board of directors ’ meeting. it is a great pleasure to have this opportunity to address such a distinguished audience. it also brings back memories of my days as one of the council ’ s executive directors and vice chairman under chairman mimura. your invitation today allows me to be here again, for the first time in almost ten years since i left the council to become chairman of the japan association of corporate executives. knowing that many of you come from trading companies which are active globally, today i ’ d like to share my ideas from the viewpoint of the role of japan amid the changing international financial environment. 2. tensions generated by globalization having previously worked for the bank of japan for 34 years, i had a chance to work in the then foreign department, our london office and other positions related to the bank ’ s international activities. it was a great experience for me to attend important international meetings such as the bis and the then g5 meetings. then, two years ago, i returned to the bank of japan as governor. now, representing the bank, i have a chance to again take part in various international meetings. attending such meetings, i have noticed two things. first, the number of international meetings has multiplied over the years. in this context, of particular note is that the presence of emerging - market countries, particularly the asian economies, has also increased. one reason for this is somewhat paradoxical in that since the asian currency crises of 1997, there is a consensus that the economic and financial stability of emerging - market economies is crucial for global economic and financial stability. indeed, the rise in the number of international meetings and participants evidences the extent to which economies are becoming globalized. the second thing i have noticed is that various kinds of tensions have arisen as the market economy has become more globalized. i clearly recall ngo activists surrounding the wto ’ s ministerial conference in seattle last december. the imfc meeting, which i attended in late april on the day after the g7 meeting, was also the target of similar protests. how can it be that the imf, a pivotal contributor to the development of the liberalized market economy after

intensifying their efforts to address climate change. however, they have faced a number of difficulties. there are considerable uncertainties over various factors such as changes in greenhouse gas emissions, large - scale natural disasters, and technical innovations in response to climate change. accordingly, best practices and responses could change over time. firms take account of the changing situation when they engage in their business activities and investment, and financial institutions provide the necessary funds. central banks can take a variety of approaches to support these efforts. central banks in europe are currently discussing measures to change the way in which corporate bonds are purchased and collateral is handled by taking into account the impact of climate change, based on certain rules. i think, however, that in japan, there are many points to be considered in terms of market neutrality, since our discussions on the guidelines and taxonomy on climate change are still in progress. in this regard, under the bank ’ s new fund - provisioning measure, financial institutions make decisions on which investment or loans contribute to addressing climate change, so that they can respond flexibly to firms ’ funding needs. the bank will also devise ways to exercise market discipline by asking financial institutions to disclose a certain level of information. this measure is a new attempt to support efforts on climate change through the conduct of monetary policy. the bank believes that the new measure will accelerate the efforts of firms and financial institutions in japan to address climate change. financial system i will next talk about the financial system. through the aforementioned channels of “ physical risk ” and “ transition risk, ” climate change could significantly affect the businesses of financial institutions, and consequently the stability of the financial system. in addition, the proper functioning of financial intermediation is vital for decarbonizing our society and the economy. the bank will actively support financial institutions in identifying and managing their climate - related financial risks, with a view to maintaining the stability of the financial system and the smoothfunctioning of financial intermediation. the areas of particular focus are as follows. 4 / 6 bis central bankers'speeches through on - site examinations and off - site monitoring, the bank will have in - depth discussions with financial institutions on their efforts to address climate - related financial risks and on their engagement with corporate customers in pursuit of decarbonization. in doing so, the quantitative assessment of climate - related financial risks is important. in this regard, there is a growing recognition among authorities and financial institutions that scenario analysis, which sets certain assumptions on the extent