sakuya fujiwara : inside a monetary policy meeting speech by mr sakuya fujiwara, deputy governor of the bank of japan, at toyo university, 13 march 2003. * * * introduction i would like to express my gratitude for the opportunity to give this speech. as you may be aware, my five - year tenure as deputy governor of the bank of japan is drawing to an end. it is also almost five years since the revised bank of japan law came into effect. the law was revised comprehensively in 1997, for the first time in its roughly 50 years of existence, in line with a growing trend among central banks around the world to strengthen their autonomy and ensure greater transparency in the implementation of their policies. previously a journalist, i was appointed as deputy governor at a time when the bank of japan was to start afresh with the new bank of japan law. it was a truly dramatic change for me. the journalist who had been watching the bank's policy from the outside, suddenly found himself working inside! through this, so to speak, switching sides, i discovered many things that were new to me about the bank. also, explaining monetary policy, there were many occasions when i was able to gain new insights into the function of the media. the bank, as the central bank of japan, conducts various kinds of business - the best known of which i believe is the issuance of banknotes. today, based on my five years'experience at the bank, i would like to talk about the process by which monetary policy is decided in accordance with the bank of japan law of 1997. more specifically, i will talk about what happens in monetary policy meetings ( mpms ). i. what is monetary policy? first, i would like to briefly explain the basics of monetary policy. the bank of japan law of 1997 mandates that the bank's monetary policy shall be aimed, through the pursuit of price stability, at contributing to the sound development of the national economy, making it clear that the objective of monetary policy is to achieve price stability. for the satisfactory development of an economy, it is necessary that resources be allocated efficiently. the competitive market mechanism is a great device to achieve this end. to enable the market mechanism to perform this function properly, one must have a grasp of the trend of prices of goods and services - relative prices, to be more precise - or, from the standpoint of firms, the trend in popular demand for products. a correct assessment of

i look back, each mpm was very intense with active discussion of the bank's conduct of monetary policy. in concluding my speech, i would like to make three points regarding mpms based on my five years'experience at the bank. first, i would like to emphasize the importance of the framework of mpms in conducting appropriate monetary policy. as i mentioned earlier, members'discussions are based on all available data on the economy and financial markets reported at mpms. these data include not only macroeconomic data but also anecdotal information regarding financial institutions and firms. this wide range of information is extremely important in monetary policy decision - making, because the bank must adjust monetary policy to changes in economic activity and financial markets while at the same time forecasting the likely effect of policy measures in the long term. second, transparency of the bank's conduct of monetary policy has been enhanced by mpms. i have attached special importance to increasing the transparency of the bank's decision - making process, having previously been a journalist who had watched the bank's conduct of monetary policy closely. given the faster diffusion of information due to progress in it, a certain degree of confidentiality is required because there is a risk that people might be misled by rumor, which could lead to disruption of financial markets. however, the bank needs to promptly release its decisions on monetary policy and explain explicitly to the public and financial markets the thinking behind each decision, including its assessment of the economic situation. this accountability in the conduct of monetary policy is an important responsibility of an independent central bank. i have made a special effort to increase the transparency of not only the details of the bank's decision but also the thinking behind the decision. this is because, if the bank's thinking and actions are interpreted correctly by market participants, medium - to long - term interest rates will start to factor in future monetary policy, and this will prevent sharp economic fluctuations. in this regard, the immediate release of decisions made at mpms, press conferences by the governor, and the publication of the monthly report of recent economic and financial developments and the minutes of mpms contribute greatly to enhancing the transparency of the bank's conduct of monetary policy. and third, i want to emphasize that there is a very active exchange of views among policy board members at mpms. we often hear criticisms outside the bank when a decision is reached by unanimous vote at mpms that there must have been very little discussion at the meeting, or