masaaki shirakawa : japan ’ s economy and monetary policy keynote speech by mr masaaki shirakawa, governor of the bank of japan, at the 2008 international monetary conference, barcelona, ( via satellite ), 3 june 2008. * * * thank you, mr. chairman. i will give you my thought on japan ’ s economy and monetary policy in the present context. with regard to the global economic conjuncture, i don ’ t have much to add to the views expressed by my colleagues. in light of the persistent tensions in financial markets and slowing growth in the advanced economies, we need to keep a close watch on how the negative feedback loop between financial markets, asset prices and the real economy will play out going forward. uncertainties surrounding this adverse dynamics are still substantial. meanwhile, the global economy is facing greater inflationary pressures with commodity prices hitting all - time highs. since the surge in commodity prices has continued for the past several years, strong demand from emerging market economies probably plays a substantial role in this phenomenon. in these circumstances, both developed and emerging market economies are facing the difficult balancing act between maintaining sustainable economic growth on the one hand and anchoring longer - term inflationary expectations on the other. these global economic forces, both downside and upside, affect japan ’ s economy through a variety of channels, adding to uncertainty for policy - makers. in this situation, japan ’ s economy is slowing because of the deterioration of the terms - of - trade associated with higher import prices. corporate earnings are squeezed by soaring energy and raw material prices, and industrial production and capital investment are losing traction somewhat. business sentiment is increasingly on the cautious side with greater downside risks to the global economic outlook. as these headwinds are likely to stay for some while, japan ’ s economy seems to slow for the time being. with regard to the baseline scenario for the next one to two years, however, i am of the view that japan ’ s economy will grow near potential. to be more specific, japan ’ s growth rate will pick up again after some hiatus to reach one - and - half percent in 2008 and somewhat higher in 2009, both of which are close to japan ’ s potential growth rate. let me elaborate on this from three perspectives. first, japan ’ s exports have been and will continue to be robust. exports to the united states have weakened in tandem with the u. s. economic slowdown, but this is more than offset by strong

our efforts to foster contacts with both other central banks as well as, in particular, national authorities and financial institutions in the major euro area countries. the representatives that we send to the german embassies in paris, madrid and now also rome, are there to expand our networks in those countries and build upon our existing relationships. their objective is to increase mutual trust and understanding. for the bundesbank, this is a way of helping to promote collective solutions and reinforcing cooperation within the euro area. digital media may have helped us all to stay in touch during the coronavirus pandemic – in fact, it worked much better than we ’ d initially anticipated. but one thing was clear in spite of all the digital tools at our disposal : meeting in person is a crucial factor in any trusting working relationship. no amount of communication via email, telephone or video conferencing can permanently replace face - to - face conversation. for this very reason, we now have a highly competent contact “ on the ground ” in the form of bundesbank representative elisabetta fiorentino. ms fiorentino ’ s professional career is a unique reflection of the close relationship shared by germany and italy. having completed a joint degree programme in german and italian, she had early experience of working in close cooperation with staff of the banca d ’ italia during her doctoral studies. her time at the bundesbank began in the research centre. in 2009, she transitioned to the private sector, working at a large italian bank in milan before returning to the bundesbank in 2013. there, her responsibilities have most recently lain in the area of financial stability. extended secondments to the banque de france and the banca d ’ italia here in rome equipped her with additional international experience. she is thus ideally primed for her new role – and as a native italian, she should be on familiar ground. 3 conclusion ladies and gentlemen, once johann wolfgang von goethe reached rome in 1796, he remained in the city for over three months. he then travelled on towards sicily before returning to rome and spending a few more months there. unfortunately, i do not have the luxury of such an extended stay in this exquisite 2 / 3 bis central bankers'speeches city. indeed, my current “ italian journey ” will come to an end in a matter of hours. ms fiorentino, you will be staying in rome for some time, making contacts, establishing relationships and fostering german - italian cooperation. i