gaily traipse off to the " lost and found ". likewise, if we can correctly communicate the board members'common knowledge to market participants and the general public, then we might expect that it can be also shared among market participants, and thus as a result, we can presume that market expectations will converge on the longer - run price stability. 7. if we look at the fan chart, we can see that our " understanding " is different from the " inflation target " adopted by the bank of england, which seems to aim at achieving a 2 % target after 8 quarters. we have no specific time horizon attached to our " understanding ". furthermore our " understanding " is also different from the ecb's numerical definition of price stability over the medium - term ( " below 2 %, but close to it " ) in the sense that the board members'opinions determine the numerical range. if there is a change in the membership of the board, then the range also changes. further, it is also possible that our " understanding " changes to reflect changes in the structure of the economy. within our framework it is possible to revise the numerical range regularly. so far there has not been any change in the numerical range of our " understanding ", despite routine changes in board membership. two perspectives approach 8. the new policy framework is entitled the " two perspectives approach ", in contrast to the " two pillars approach " advocated by the ecb. the first perspective examines whether the outlook deemed most likely by the boj follows a path of sustainable growth under price stability within the forecast period, while the second provides an assessment of various risks, including low - probability events which can cause serious damage to the economy beyond the forecast time horizon. the latter perspective shares features in common with the " risk management approach " urged by former federal reserve chairman alan greenspan 1. transparency and flexibility 9. keeping in mind the " understanding of medium - to long - term price stability ", we make policy decisions by examining the plausibility of our scenario presented in the semi - annual outlook and by assessing the various risks and the uncertainty ahead for our economy. as the plausibility of forecasts and the examination of risks play a key role, the new policy framework can be broadly described as a " forecast - based policy " which is inherently forwardlooking ( bernanke ( 2004 ) ). the publishing of projections, and the related explanations and reasoning, contributes to enhancing the transparency of

kazumasa iwata : transparency and communication policy in japan summary of a speech given by mr kazumasa iwata, deputy governor of the bank of japan, at the panel session " recent and prospective developments in monetary policy transparency and communications : a global perspective, " at the allied social science associations annual meeting, new orleans, 5 january 2008. * * * introduction 1. following the introduction of the new bank of japan law in 1998, the bank's de - jure independence has been significantly strengthened. the board members can be confident of making decisions independent of interference from outside the bank, although the rationale, the process and the consequences of those decisions are exposed to the critical eye of the media, the boj - watchers and the politicians. the independence, together with the long - term tenure, allows the decision making of the boj a longer time horizon. this should enable the boj to carry out its tasks with both transparency and flexibility. at the same time, in a democratic society, the responsibility to fulfill the mandate of policy objectives is increased ; that is to say, this independence is accompanied by accountability. a lack of transparency in the decision - making process may easily lead to a deficit of accountability. in addition to the clarification of monetary policy objectives, central banks provide the framework for communication about the justification for their decision. moreover, to gain the benefits of providing an anchor for expectations regarding the future inflation rate, some central banks are even willing to clarify the future course of monetary policy based on their economic forecast. transparency is needed not only for achieving accountability, but also to make the effect of monetary policy more efficient through market expectation channels. the communication policy, if it is managed successfully, serves to enhance transparency. objectives 2. for today's panel discussion, let me take up some issues of transparency and communication policy in the light of recent experience in japan. while the issues cover several aspects including ( 1 ) objectives, ( 2 ) procedures, ( 3 ) economic analyses, ( 4 ) actions and ( 5 ) policy instruments, i will focus on two of them, namely, the objectives and instruments. 3. the new bank of japan law states that, " currency and monetary control shall be aimed at, through the pursuit of price stability, contributing to the sound development of the national economy " ( article 2 ). the dual mandate of sustainable growth under price stability is similar to the " maximum employment and price stability " mandate of the