december 26, 2016 bank of japan a new phase of the global economy and challenges facing japan's economy speech at the meeting of councillors of nippon keidanren ( japan business federation ) in tokyo haruhiko kuroda governor of the bank of japan ( english translation based on the japanese original ) introduction it is a great honor to have this opportunity to address such a distinguished gathering of business leaders in japan today. 2017 is now just a week away. today, to round off 2016, i would like to take a look back at this year's economic developments. then, from a somewhat longer - term perspective, i would like to talk about the current phase of the global economy, and close my speech by touching on challenges facing japan's economy, looking ahead to next year. i. the global economy in 2016 reviewing 2016, it started off with volatile global financial markets. specifically, shanghai stock prices declined significantly at the beginning of the year, reflecting uncertainties regarding developments in the renminbi, and this led to a rapid worsening of investors'risk sentiment. these developments in emerging economies brought about declines in stock prices and long - term interest rates in major advanced economies. at the group of twenty ( g - 20 ) finance ministers and central bank governors meeting held in shanghai in late february, the member countries agreed to cooperate in addressing volatility in financial markets and the heightening of uncertainties in the global economy. due in part to this, global financial markets had stabilized temporarily. however, a " risk - off " mode in global financial markets continued thereafter through autumn, partly reflecting the united kingdom's referendum in late june, in which the majority voted to leave the european union ( eu ). on the growth and inflation front, the trend decline in the growth rate - - the so - called secular stagnation hypothesis - - and the global decline in inflation rate have been hotly debated. many of you may have an impression that 2016 was a year in which pessimistic views on the global economy prevailed. however, actual data indicate that the global economy is not as bad as it appears. the pace of growth in advanced economies has accelerated recently, mainly led by the solid u. s. economy ( chart 1 ). there are increasing expectations of acceleration in the u. s. economy's growth rate going forward, reflecting the outcome of the presidential election. in fact, various economic indicators actually continued to improve steadily even before the election. in emerging and

, reflecting this development, the economic recovery that had been led by the household sector is now spreading to the corporate sector, including manufacturing. commodity prices such as crude oil prices bottomed out in the first half of the year and turned to an increase thereafter, reflecting the recovery in global demand ( chart 7 ). the global economy seems to be finally entering a new phase, by putting the negative legacy of the global financial crisis behind it, although considerable uncertainties lie ahead. iii. japan's economy amid the global economic developments now, let me turn to japan's economy amid the global economic developments that i've just explained. the global financial crisis that started in 2008 exerted a considerable impact on japan's economy. as you all know, it was triggered by concerns over the stability of financial systems as subprime mortgage - related losses spread in the united states and europe. it should be noted that the downturn in the real economy in japan was more significant than that at the epicenter of the crisis - - namely, the united states and europe - although losses at financial institutions were rather limited and the soundness of financial systems was well maintained ( chart 8 ). there seem to have been two factors behind that development. first, as i mentioned earlier, manufacturing - - in which japan has a competitive advantage - - was stagnant on a global basis, as seen in particular with the decline in demand for capital goods. second, the yen appreciated in an excessive manner, exerting a significant negative impact on japan's economy, mainly on manufacturing. this was because the yen had been perceived as a safe haven currency in the global financial markets, in addition to the fact that there had been little room for further reduction in interest rates in japan. under these circumstances, japan's economy was put in an unfavorable situation. the bank responded by lowering the short - term policy interest rate - - which already had declined to as low as 0. 5 percent - - to 0. 1 percent. in addition, it undertook new policy initiatives including the purchases of risk assets such as cp, which we call " comprehensive monetary easing. " despite these efforts, japan's economy did not get out of deflation, as the bank was not able to provide sufficient monetary stimulus given the limited room for lowering the short - term interest rates. it was against this background that the bank introduced in april 2013 an unprecedentedly large - scale monetary easing, quantitative and qualitative