interbank money markets, immediately spilling over to a wide - range of financial markets. see nakaso ( 2001 ) for the details on japan ’ s financial crisis and the boj ’ s role as the lender of last resort. when sanyo securities failed, the default of one billion yen in the interbank money markets occurred. given the serious adverse effects of the failure of medium - sized sanyo securities on interbank money markets, at the time of the subsequent and larger failure of yamaichi securities, the boj committed to providing an unlimited amount of liquidity, thereby enabling its orderly resolution. 20 such policy responses staved off a global financial crisis starting in japan. 21 a series of observations, just i mentioned, show that ensuring funding liquidity is one of the most important prerequisites for achieving stable economic activity, and, to that end, it is crucial to stave off the malfunction of interbank money markets. in addition, i emphasize the importance of differentiating two things in analyzing the economy after the burst of a bubble : the phase of “ acute pains ” arising from the malfunctioning interbank money markets and the phase of “ chronic illnesses ” from balance - sheet adjustments. weakened credit channel the third similarity can be found in the fact that the transmission channels of conventional monetary policy, explained in standard textbooks, did not seem to work well after the burst of a bubble. a typical example can be found in the credit channel. in japan, the growth in bank lending decelerated rapidly after the burst of the bubble, and continued to remain stagnant for a long time ( chart 17 ). the growth in bank lending finally turned positive in 2005. looking at the united states and european countries, the growth in bank lending is still continuing to decline, and the pace of the decline is much faster than that in japan after the burst of the bubble. in addition, the expansions in the monetary base did not induce an increase in money supply nor bank lending ( chart 18 ). before the outbreak of the recent global financial crisis, quantitative easing was frequently proposed as a measure against deflation. nevertheless, we hardly observe the fact that massive expansions in central bank balance sheets result in an increase in inflation in advanced economies. 22 such fact suggests that conventional monetary policy becomes substantially constrained under the economic circumstances with zero interest rates and ongoing balance - sheet adjustments. the effectiveness of unconventional policy measures under the dysfunctional financial system the fourth similarity

masaaki shirakawa : uniqueness or similarity? japan ’ s post - bubble experience in monetary policy studies keynote address by mr masaaki shirakawa, governor of the bank of japan, at the second international journal of central banking ( ijcb ) fall conference, tokyo, 16 september 2010. * i. * * introduction i am very pleased to have a chance today to address the ijcb conference. in particular, this conference is very timely and appropriate in two aspects. first, as everybody here is well aware, this conference focuses on a very important theme for central bank policymakers in the current situation, “ monetary policy lessons from the global crisis. ” second, whether intentionally or not, this conference is held in japan, the country often quoted as a precedent on that theme. 1 in fact, we hear heated discussions in the united state as to whether the united states will fall into “ deflation in the japanese style ” or the “ lost decade like japan ” ( chart 1 ). 2 the line of discussions generally has something in common in interpreting japan ’ s experience. that is, a weak economic performance is attributed mainly to the failures of japan ’ s policy authorities or the factors peculiar to the japanese economy and society. i cannot completely deny japan ’ s uniqueness, but i should also emphasize that we can find a lot of similarities between japan ’ s experience and our experience in the recent global financial crisis. at various international conferences i attended in the early 2000s, i explained the japanese situation many times, but never imagined that zero interest rates and quantitative easing would be adopted by other central banks in the advanced economies. i believe many of central bank officials thought the same way. in short, japan ’ s experience provides too important and general food for thought to say that japan is just unique. nevertheless, i have the impression that japan ’ s experience is often discussed, based on casual reading of related facts. taking this opportunity, i will articulate my thoughts on how to make use of japan ’ s experience since the burst of a bubble in making monetary policy studies. 3 ii. seven facts on japan ’ s economy since the burst of a bubble the japanese economy after the burst of a bubble is often referred to as the “ lost decade. ” 4 real gdp growth remained just 1. 5 percent on average in the 1990s, which declined significantly from 4. 6 percent in the 1970s and 4. 4 percent in the 1980s ( chart 2 ). 5 cpi inflation reached