haruhiko kuroda : our future in the digital age closing remarks by mr haruhiko kuroda, governor of the bank of japan, at the g20 high - level seminar on financial innovation, fukuoka, 8 june 2019. * * * i am delighted to be given this opportunity to speak to you at the end of this important seminar. today, we discussed two topics on the theme of “ our future in the digital age. ” the first session explored potential benefits and risks arising from financial and technological innovation. as a key to achieving a better society, speakers highlighted the importance of leveraging emerging digital technology in financial services. at the same time, they also pointed out the build - up of risks in the financial and economic system. the second session examined blockchain technology. the panel laid out key factors to facilitate a sound expansion of decentralized financial ecosystems. ongoing financial innovation is anticipated to further impact the financial and economic system. although it is difficult to predict the outcomes, we can learn from the progress and issues arising from financial innovation in the past decades. for example, credit and market risk management tools along with risk transfer technology enhanced financial intermediation. on the other hand, however, the global financial crisis was partly attributable to such progress in technology, which is still fresh in our minds. how then can we mitigate risks while benefiting from innovative technology? a good clue to that would be to interpret financial and economic activities as interactions within a system as well as among multiple systems. examples include portfolio insurance strategies on black monday, which led to an unexpectedly sharp drop in equity prices through interactions among market participants. the recent financial crisis displayed a feedback loop between deteriorated liquidity in securitization markets and severe funding conditions in the banking sector. historically, the financial system has carried risk - amplifying mechanisms in an insidious manner that would pose serious threats to the system as a whole. people realized their mistakes only after unexpected disasters took place. the modern financial system has repeated such experiences. innovative financial services and new entrants have begun to transform the structure of the financial system. we should reap the benefits of innovation while carefully assessing risks that build up unintentionally. recent innovation also provides us with policy tools to address these issues. incorporating big data into analytics reveals how individual market transactions and payment flows make up the entire financial network. evolution in computing capacity and computational technology has brought changes to existing analytical approaches, which

financed by banks directly and indirectly in financial markets using securitized products. in this way, relying on market financing tools, banks faced pressure from market participants who recognized valuation losses, and the authorities had no choice but to inject capital into banks at an early stage using public funds. on the other hand, in the case of japan, the funding of non - performing assets was mainly carried out by banks, which did not rely so much on capital markets. this funding structure failed to exert strong pressure on concerned parties to deal with non - performing assets promptly. the third difference is the relatively small burden shouldered by domestic investors. in the case of the united states, capital losses – that is, the costs associated with balance - sheet repair – were imposed not only on domestic investors but also shared by investors abroad to a significant extent. this corresponds to the fact that investors abroad increased their exposure to the complicated securitized products that originated from subprime loans ( chart 14 ). on the other hand, in japan, an increase in debt was mainly reflective of borrowing from domestic financial institutions, which basically shouldered the burden of subsequent balance - sheet repair. the fourth difference is with regard to demographics. japan faced a rapid aging of the population and its working - age population started to decline after reaching its peak in 1995 ( chart 15 ). on the other hand, although its pace of increase has been on a declining trend, the u. s. working - age population is still growing, at 0. 8 percent. at the same time, however, we need to pay attention to the fact that the pace of increase in the number of net immigrants has been diminishing, reflecting a recent decline in u. s. growth rates. the fifth difference is in terms of the flexibility of the economy. the u. s. economy has more flexibility, as witnessed by vigorous entrepreneurship, efficient and smooth functioning of labor and capital markets, and the country ’ s leading role in research and development. nevertheless, we should bear in mind that the entry rate and labor mobility have remained at low levels after the bursting of a bubble. the sixth difference is with respect to the global economic environment surrounding the two nations. balance - sheet repair in japan was completed in the early 2000s, supported by global economic upturns such as strong growth in the united states and in emerging economies. however, global economic conditions are not favorable this time around. japan ’ s bubble was a domestic one, whereas the recent financial crisis