masaaki shirakawa : how to address tail risks speech by mr masaaki shirakawa, governor of the bank of japan, at the annual general meeting 2011 of the foreign bankers ’ association in the netherlands, amsterdam, 27 june 2011. * * * i. introduction today i am privileged to have the opportunity to speak before the foreign bankers ’ association in the netherlands, a respected association with a rich history and tradition. i would like to express my gratitude to chairman freddy boom for the warm introduction. since i believe this marks the first time for a governor of japan ’ s central bank to address the association, let me begin my remarks by briefly reviewing the historical relationships between the netherlands and japan. as many of you may know, the two countries have nurtured close ties for centuries. the first contact between them dates back to 1600, when a dutch trading ship named de liefde drifted to the land called bungo. i happened to have worked at our branch located near the point of landing and have long been interested in this episode. a dutch national named jan joosten became a diplomatic adviser to the first shogun of the tokugawa government, which maintained a national isolation policy for some two hundred years from the early 17th century to the mid - 19th century. nevertheless, as an exception, the netherlands continued to be a trading partner with japan during this period. for japan, the netherlands was not merely a provider of foreign merchandise but also a window on advanced western science and technology, such as medical science, physics, and chemistry. the intellectual class in japan referred to such subjects as rangaku, or “ dutch studies. ” let me also note that the enlightenment thinker yukichi fukuzawa, whose portrait is on the ten thousand yen bill, made strenuous efforts in his younger days to master dutch and learned about western civilization from dutch literature. when i was given this chance to make remarks in the netherlands, the first thing that came to my mind was the fact that both the netherlands and japan have devoted significant energy to dealing with the war against nature. with a quarter of its land below sea level, the netherlands is well known for its history of repeated hardships caused by great floods. historically, japan has lived with earthquakes. floods and earthquakes do not happen frequently but do cause significant damage when they occur. in this regard, within the short period of the past three years, japan experienced not only the recent great east japan earthquake but also another significant event. needles

that is taking place. following a decade of significant economic and financial transformation, asia has emerged as a major growth centre in the global economy. asia now accounts for one third of world output and 28 % of world trade. this progress and development has created employment and improved living conditions, lifting millions out of poverty. while asia is one of the most diverse regions in the global economy, it has been able to take advantage of the complementarities in the region to generate significant expansion in intra - regional trade, intra - regional investment activities and increased intra - regional financial flows. vision of asia this award speaks to the growing importance of asia within the world economy. allow me to touch on three major trends in asia that are likely to influence asia ’ s role in the world as we advance into the future. first, the role of the growing cumulative domestic demand in asia for the regional and global output. second, the role of asia in the more efficient intermediation of funds mobilised in asia arising from the more pronounced regional financial integration. third, is the policy strategies being adopted by the region to address challenges and the model for the management for international relations. the economic transformation of asia in this decade has resulted in asia becoming an important source of cumulative demand in the global economy. rising incomes, low unemployment, a young demographic structure that has higher propensity to consume, relatively low level of household debt and policies to encourage consumption have spurred consumption demand. other measures being initiated include putting in place social safety nets in the form of schemes and programmes for education, healthcare, retirement and unemployment benefits. this has not only resulted in significant expansion of the retail trade sector in the region but asia is increasingly becoming an important consumer in the global economy. private investment activity has also resumed following a period of excess capacity due to overinvestment prior to the asian financial crisis. there are also plans for massive investment in infrastructure development in the region. while asia has the internal capacity from its high savings to finance these investments, the resulting higher import demand that these investments will generate will contribute to the further unwinding of the global imbalances. this stronger domestic consumption and investment demand in asia is also being supported by the strengthened and more developed financial systems. the relatively low level of leverage of the corporate sector and the continued access to financing support this trend. while regional economic integration has always been part of the asian economic landscape, regional financial integration has been a more recent phenomenon. while regional financial integration will facilitate the already