is in fact the starting point for the subsequent questions. the second question is why deflation has continued for a prolonged period. discussions on the severe economic conditions then lead to the third question : are japan ’ s public finances sustainable? in this context, i am often asked why, despite the deterioration in the fiscal balance, yields on japanese government bonds ( jgbs ) have been stable at low levels. finally, a fourth question i am often asked is whether japan ’ s economy can really regain its vitality. it is an undeniable fact that japan ’ s economy faces many challenges. however, i believe that japan ’ s economy can most definitely regain its vitality. needless to say, we have to work hard to achieve this. obviously, the right prescriptions are also essential. to this end, it is necessary to have an accurate understanding of both the strengths and the weaknesses of japan ’ s economy. i am looking forward to exchanging views with you on this point later. bis central bankers ’ speeches ii. the current state of japan ’ s economy i will start with short - term developments in economic activity in japan. japan ’ s economy contracted severely following the failure of lehman brothers, but then started to improve around spring 2009. it continued doing so until the summer of 2010, mainly due to the increase in exports and production brought about by faster growth in emerging and commodity - exporting economies as well as policy measures to promote the sale of environment - friendly durable consumer goods. the improvement seems to have paused from the fall of 2010, but recent data suggest that japan ’ s economy looks like it is about to emerge from that pause. if we compare these short - term developments in japan ’ s economy with those in other advanced countries, japan is not doing badly. 1 for example, according to the latest projections by the international monetary fund, japan ’ s economy was expected to grow by 4. 3 percent in 2010, the highest rate of growth among the g - 7 countries ( chart 1 ). moreover, the unemployment rate in japan, although higher than before the failure of lehman brothers, is at 4. 9 percent, which is far below the roughly 10 percent in the united states and the euro area ( chart 2 ). of course, the current level of economic activity is still below that before the global financial crisis and therefore not satisfactory. however, this is a problem common to many advanced economies. with regard to the degree of financial system stability, japan is the most stable

money in recent times. in fact, a fundamental, and achieved, objective of inflation targeting was to obtain a more competitive exchange rate. exchange rate targeting, the implicit policy of the 1990s, kept the rand uncompetitive. it is likely that the act of introducing the inflation - targeting framework helped to attract capital in 2000 because it signalled a move to a much better policy framework, but south africa was starved of capital at the for the panel [UNK] s recommendations, see ricardo hausmann [UNK] s final recommendations of the international panel on growth, available at http : / / www. treasury. gov. za / comm _ media / press / 2008 / final % 20recommendations % 20of % 20the % 20i nternational % 20panel. pdf, especially pages 6 and 12 - 13. see, for instance, luke jordan [UNK] s it ’ s time to debate the central bank ’ s mandate, available at https : / / www. dailymaverick. co. za / opinionista / 2017 - 06 - 23 - its - time - to - debate - the - central - banksmandate / #. wvur5rwgoum ( june 2017 ). this point was made at the time by kenneth creamer, in “ sa needs an inclusive growth path ”, mail & guardian, published on 4 july 2008. page 9 of 17 time. any other policy framework that improved on the previous one would have had the same effect. let me make a broader point about this debate. south africa needs capital to develop. it also needs a reasonably competitive real exchange rate. achieving both is not easy, but the simple solutions occasionally proffered are seriously inadequate. first, they invariably focus on nominal depreciation and not on real depreciation ; the inflationary sideeffects of nominal depreciation are ignored. second, the proposals never say anything about the implications for the fiscus, for interest rates, and for the broader economy of targeting a specific exchange rate level. 13 third, i would like to hear why this effort would be successful in south africa when it has not worked well in other democracies that have tried it. even a cursory review of the asian success stories shows they had a very high savings rate and used financial and wage repression and price controls to achieve real undervaluation. how exactly would these authoritarian approaches to policy be implemented here? at the end of the day, we