european banks can retain access to the uk. whether the uk would be prepared to unilaterally grant access for eu financial institutions in order to retain the attractiveness of london as a financial centre, remains an open question. and let me add that it is of course not regulation alone that plays a role when european banks decide on opening a branch or a subsidiary in the uk. it is also a question of what kind of entity their counterparties and clients want to do business with. let me summarise the prospects for market access, at least from my point of view. continued passporting rights are rather unlikely, and an equivalence decision would be a somewhat imperfect substitute. a transition period could ease some of the pressure, but it clearly is a sensitive issue. could a free trade agreement be the solution? according to their brexit white paper, the uk government will strive for an ambitious free trade agreement with the eu as a long - term solution. but regardless of the fact that negotiating comprehensive free trade agreements is an arduous and time - consuming task, financial services are an especially tricky area. so far, the eu has never fully integrated finance in its free trade agreements with third countries. where does this lead us? so far, while acknowledging and accepting the divorce, policymakers are trying to find ways to hold the uk and eu economic areas and jurisdictions together. and they will continue trying so. the reason is that most of us are convinced that harmonised rules eliminate unnecessary frictions and act as a powerful catalyst for business across national borders – for the real economy as well as the financial sector. however, looking at the facts that i ’ ve just laid out we also have to acknowledge that it is at least questionable whether this undertaking will be easily achieved. financial institutions should take into consideration that, in the end, there might well be two separate jurisdictions in which they operate, and that these jurisdictions might diverge over time – or instantly, once the divorce has gone through. 3 whether and where to move as a consequence, many banks are now considering moving some of their activities to the eu. first, let me say that i expect london to remain an eminent global financial centre. nevertheless, i also expect a number of uk - based market participants to move at least some business units in order to hedge against all possible outcomes of the negotiations. 2 / 5 bis central bankers'speeches the question that is causing some excitement is : where will banks go? as a supervisor, my main

decisive measure of quantitative and qualitative monetary easing in april last year. at the same time, as for fiscal policy, the government launched an expansionary policy partly through a supplementary budget while taking due account of long - term fiscal sustainability. in escaping from deflationary equilibrium, in my view, monetary and fiscal policies that were independently conducted under inflationary equilibrium need to be pursued with a different approach. in this regard, the joint statement of the bank and the government announced in january last year may have been playing an important role as a coordination device that enables the collective conduct of monetary and fiscal policies. thanks to these measures taken, the latest figures in chart 2 suggest that japan ’ s economy has gradually but steadily been escaping from deflationary equilibrium. having said that, we are only halfway to achieving the 2 percent inflationary equilibrium. in view of this, what warrants attention are effects of the consumption tax hike from this april. while there are some goods, like automobiles, that seem to face a larger increase in demand ahead of the tax hike compared with the previous consumption tax increase in 1997, we would like to wait for an accumulation of data to judge the overall effects on private consumption ( chart 3 ). personally, i believe that japan ’ s economy as a whole is resilient enough to absorb the effects of the consumption tax hike. the major reasons for this are continued improvement in employment and income conditions and the absence of problems that existed in the previous 1997 tax hike. in particular, the critical difference is that, while the financial intermediation function that supports economic activity was broken due to the domestic financial crisis, which was at its peak in 1997, the financial system is in sound, robust shape this time around. put differently, the absence of a financial system problem corresponds to the fact that problems such as debt overhang, excess capacity, and excess employment that had haunted the economy at that time have been resolved thanks to subsequent efforts by firms ( chart 4 ). the bank will steadily pursue quantitative and qualitative monetary easing to make sure we put an end to this deflation. as we have said repeatedly, should the outlook for economic activity and prices change due to some risk factors, the bank will make adjustments as necessary. while overcoming this deflation is the bank ’ s manifest mission, for japan ’ s economy to move to a sustainable growth path, it is crucial to inspire private economic entities ’ bis central bankers ’ speeches entrepreneurship and dynamism in order to reinforce