1980s and beginning of the 1990s, partly as a result of excessive lending by newlyderegulated banks. our whole approach to foreign exchange intervention is based on our view that the foreign exchange market is not “ efficient ” in the academic sense, but that it is prone to overshooting in both directions from time to time. in other words, we do not have an idealised view of how deregulated asset markets behave - we have a realistic “ warts and all ” view. but even holding that view, we are confident that a deregulated model with no obstacles to capital movements is the best one for australia. it took us a long time to adopt it, but there is now wide support for it at the political, policy adviser and community level, and i hear no suggestions that we should change it. but that does not mean that we should be urging every other country to adopt this model regardless of their state of development. eventually, i think it will be in the interest of emerging market economies to do so, but the sequencing of this and other policies is crucial. 2. an emerging market perspective when we look at international capital movements from the perspective of an emerging market economy, the view can be very different. for a start, the size of the financial sector in an emerging market is often extremely small relative to the flows of capital that emanate from developed countries. as paul volcker has put it : “ one common characteristic of ( emerging market ) countries, some large in population and area, is the small size of their financial sector. the aggregate size of the banks in the typical emerging country is now the size of a single regional bank in the united states - precisely the kind of bank that is told that it is too small to survive in today ’ s turbulent markets. ” 1 speech to institute for international finance, washington, october 1998. what is a small adjustment of investment strategy for a few major banks or mutual funds may be a large injection or withdrawal of funds for an emerging market. second, it is clear that for most of the asian emerging markets, some of the capital inflow that occurred in the mid to late 1990s was not, in any sense, needed. it was more than the amount required to finance their current account deficit, and it certainly was not needed to support their exchange rate because these were under unwelcome upward pressure throughout the period. the purist would say that if they did not want the inflow they should have let their

october 16, 2018 bank of japan globalization and monetary policy panelist speech at bis symposium to mark the 20th anniversary of the bis representative office for asia and the pacific ( hong kong, october 15, 2018 ) haruhiko kuroda governor of the bank of japan first of all, i would like to extend my sincere congratulations to general manager carstens, dr. remolona, chief representative for asia and the pacific, and other staff members of the bis asian office on the office's 20th anniversary. over the past twenty years, the asian economies have experienced significant changes, particularly improvements in resilience to external shocks. the bis asian office has played an important role in these improvements, including by enhancing cooperation among central banks in the region. i will touch upon the importance of regional cooperation in promoting global monetary and financial stability later, but let me first discuss price and financial stability within individual economies under globalization. how has globalization affected price and financial stability? as we saw in the global financial crisis a decade ago, and in the asian financial crisis about two decades ago, global or regional financial integration did affect domestic financial stability in many countries. while financial integration facilitates consumption smoothing and diversification of risks across countries, large and volatile capital flows carry risks for global financial stability. compared with the effects on financial stability, what is less evident is how globalization has affected price stability. since bis economists, about a decade ago, proposed the hypothesis that the factors influencing domestic inflation have become increasingly global, 1 this hypothesis has attracted considerable attention. a large body of empirical studies have examined whether, and to what extent, global factors such as global economic slack and global competition have affected domestic inflation dynamics, and whether their roles have increased with global economic integration. the evidence so far, however, still seems to be inconclusive. there could be several channels through which globalization affects domestic inflation. most obviously, movements in import prices directly affect consumer prices. moreover, some global factors such as international competition pressure and cross - border price differentiation of multinational corporations could affect domestic prices without actual import flows. these channels may be captured by the global output gap and global markup of price over cost as additional explanatory variables in the standard phillips curve equation, in addition to import prices. more recently, bis economists have demonstrated that the growing 1 borio, c. and a. filardo ( 2007 ) " globalisation and inflation : new cross - country evidence on the global determinants of domestic inflation,