october 10, 2019 bank of japan development of asia's capital markets : roles and challenges keynote speech at the asifma annual conference 2019 masayoshi amamiya deputy governor of the bank of japan introduction good morning everyone. it is my great pleasure to be here at the asia securities industry and financial markets association ( asifma ) annual conference 2019. i am honored to address this distinguished audience comprised of representatives from the securities and asset management industries, institutional investors, policy makers, and regulators in asia and other important regions. asia's capital markets have experienced remarkable growth since the asian financial crisis in the late 1990s. asia's share of global stock market capitalization1 soared from 1 percent in 2000 to 15 percent in 2017. notably, the amount outstanding in local currency bond markets in asia as a share of gdp2 in 2018 increased to more than double that in 2000 ( chart 1 ). obviously, the rapid expansion of asian economies has driven the growth of the capital markets in the region. at the same time, the collective efforts of market participants, policy makers, and regulators both at national and regional levels have contributed to market liberalization and enhancement of market infrastructures in asia. typical examples of such regional cooperation include the asian bond markets initiative ( abmi ), launched by the asean + 3, as well as the asian bond fund ( abf ) initiative3 of the executives'meeting of east asia - pacific central banks ( emeap ), which is a group of 11 central banks and monetary authorities in the region. financial industry associations, such as the asifma, have also played a vital role by facilitating dialogue between market participants, promoting regional coordination, and providing necessary recommendations based on figures for " east asia & pacific " ( a country and region grouping employed in the world bank's world development indicators ) excluding high - income countries and regions ( australia, hong kong, japan, south korea, new zealand, and singapore ). 2 based on the aggregated amount outstanding in local currency bond markets in china, hong kong, india, south korea, malaysia, the philippines, singapore, thailand, and vietnam. 3 the asian bond fund ( abf ), established in 2003, is an index bond fund with a two - phase framework, namely, " abf1, " which invested in u. s. dollar bonds, and " abf2, " which invests in local currency bonds and is open to private sector investors. in 2016, because the em

since the asian financial crisis, many countries in the region have made wide - ranging efforts, including a reduction in the non - performing loans held by banks, in order to enhance their resilience against capital flow dynamics. however, the presence of domestic bond markets in the asian financial system is still limited, compared with that of banking sectors. in order to further strengthen financial stability in asia, it is important to diversify funding sources for firms by developing domestic bond markets. 5 recent empirical studies6 point out that domestic bond markets in east asia provided an alternative source of funding for firms in the region when the liquidity of international debt markets vanished during the global financial crisis from 2008 to 2009. east asia saw greater domestic bond issuance during the crisis, in contrast with lower international bond issuance and a reduction in the amount of syndicated loan origination ( chart 3 ). this result tells us how important it is to develop domestic bond markets to make the asian financial system more robust. enhancing the effectiveness of monetary policy lastly, i will touch on the effectiveness of monetary policy. for the conduct of monetary policy, central banks buy and sell financial instruments from capital markets, and they also receive financial instruments as collateral for the provision of liquidity. so, the degree of market functioning and liquidity concerning those financial instruments is a critical element that impacts the effectiveness of monetary policy. for example, see bank for international settlements ( 2016 ), " a spare tire for capital markets : fostering corporate bond markets in asia, " bis papers, no. 85, which focuses on the importance of domestic bond markets among capital markets in times of crisis. 6 abraham, f., j. j. cortina, and s. l. schmukler ( 2019 ), " the rise of domestic capital markets for corporate financing : lessons from east asia, " world bank group policy research working paper, no. 8844. in this regard, repos are financial instruments that are frequently used in the conduct of monetary policy, because repos carry a low credit risk and they are suitable for inventory and liquidity management by market makers. in asia, market participants have preferred to use fx swaps and uncollateralized funding because of their accessibility and operational convenience, and the role of repo markets has been relatively limited overall. however, the situation is now changing. the emeap market survey7 suggests ongoing efforts to enhance the functioning and liquidity of money markets such as repos. these efforts