haruhiko kuroda : the role of foreign financial institutions in japan ’ s financial system speech by mr haruhiko kuroda, governor of the bank of japan, at a meeting held by the international bankers association of japan, tokyo, 29 september 2014. * * * introduction thank you for having me at this event commemorating the 30th anniversary of the international bankers association of japan or the iba japan. the iba is a business association for foreign banks, securities firms, and other associated financial services firms operating in japan. since its establishment in 1984, the iba has been making a substantial contribution to economic and financial developments in japan. i wholeheartedly honor the 30th anniversary of the iba japan and pay respect for its constant efforts to date. to start with, let me look back on the developments in the cross - border integration of financial markets and the role foreign financial institutions have been playing during the 30 years since the iba japan was established. then, i will touch on the importance of financial system stability from a central bank ’ s perspective, and close my speech by briefly explaining the bank of japan ’ s monetary policy management. financial globalization and financial system stability the establishment of the iba in 1984 coincided with the publication of the report by the joint japan - u. s. working group on the yen / dollar exchange rate, financial and capital market issues. the report of the working group included the liberalization of, and the entry of foreign financial institutions into, japan ’ s financial markets, as well as the development of the euroyen market in order to promote, so to speak, the opening of japan ’ s financial markets to the rest of the world. in the 30 years since the publication of the report, the globalization of the economy and the financial system has progressed significantly. with the globalization of the financial system and the growing cross - border integration of financial markets, the role played by foreign financial institutions in japan has been quite significant. many foreign financial institutions that have started business one after another in japan have been playing a leading role in japan ’ s financial markets in various aspects, including the adoption of new financial technologies, the development of new markets, and the introduction of advanced risk management methods. in addition, they have played an important role in tightly linking financial markets across borders. the economic and financial globalization has proceeded rapidly in recent years first in advanced economies, then involving emerging economies. naturally, such developments are part of the process of increasing the interdependen

lead to significant changes in the economy as a whole. even at normal times, it is important to appropriately grasp the conditions of the financial system in monetary policy management. analysis and assessment on risks in the financial system taking those points into account, the bank examines risks in the financial system in establishing the guidelines for monetary policy. in establishing the guidelines for monetary policy, the bank assesses the economic and price situation from two perspectives. the first perspective concerns examining whether the outlook for economic activity and prices in the coming two years or so suggests that the economy is on a path toward sustainable growth with price stability. at the same time, the second perspective, based on a longer - term viewpoint, concerns examining the risks that the bank considers to be the most relevant to monetary policy management in achieving sustainable growth with price stability. this second perspective includes the examination of risks in the financial system as one element of medium - to long - term risks. japan ’ s financial system currently maintains stability and has substantial resilience against shocks. capital bases of financial institutions have been adequate on the whole, given that bis central bankers ’ speeches the accumulation of capital has continued while the amount of risk borne by financial institutions has increased only slightly. developments in financial intermediation show no indication of overheating or excessively bullish expectations. in the future, the globalization of the economy and transformation of industrial structures could lead to changes in the financial intermediation function and the risk profile of the financial system. in addition, financial and economic developments at home and abroad would affect financial institutions ’ performance in securities investments. the effects of various environmental changes on financial system stability will continue to warrant attention. analyses that form a basis for the bank ’ s assessment of risks in the financial system as a whole are semiannually published as the financial system report. the next issue will be published in mid - october and i hope you will have a chance to read it. concluding remarks let me conclude by briefly touching on the bank ’ s monetary policy management. although a decline following the front - loaded increase in demand prior to the consumption tax hike still remains and there has been some weakness in exports and industrial production, a steady improvement in the employment and income situation has been continuing and household sentiment has been improving. firms have been maintaining their proactive stance for business fixed investment as corporate profits have improved. the virtuous cycle from income to spending has been operating steadily in both the household and corporate sectors, and japan ’ s economy is expected to