sayuri shirai : the euro area crisis, the flight - to - safety premium, and cooperation and coordination among central banks remarks by ms sayuri shirai, member of the policy board of the bank of japan, at the workshop co - hosted by the asian development bank institute and the reinventing bretton woods committee, “ adjusting the world to the new realities of the international financial system ”, tokyo, 12 october 2012. * i. * * introduction good morning. my name is sayuri shirai, and i am a policy board member of the bank of japan. it is indeed a great honor for me to be here, giving a talk at the workshop co - hosted by the asian development bank institute ( adbi ) and the reinventing bretton woods committee ( rbwc ) under the title of “ adjusting the world to the new realities of the international financial system ”. currently, one of the major sources of global uncertainty arises from stresses in the euro area. therefore, i would like to focus today first on the current situation of the euro area crisis. i would then like to move on to the issue of how the euro area crisis has been affecting japan and other developed countries through financial channels. finally, i would like to address the challenging issue of cooperation and coordination among central banks. ii. current situation of the euro area crisis in the euro area, there remains a high degree of uncertainty over political and economic developments. along with the ( short - term ) adverse impact of fiscal consolidation measures, the crisis initially led to deteriorating economic conditions in the peripheral countries. initially, the crisis was largely contained in those peripheral countries. however, the crisis is now affecting the core countries through trade and financial channels and a rapid deterioration in corporate and consumer sentiment. consequently, the euro area has reentered a recession, and this has contributed to a slowdown in global economic growth. the sluggish economy in the euro area is likely to last at least until the end of the year, according to european central bank ( ecb ) estimates released last month ( whereby the central rate of real gdp growth rate for 2012 was adjusted downward from minus 0. 1 percent in june to minus 0. 4 percent in september ). to deal with the financial sector ’ s funding difficulty in the peripheral countries, the ecb has been actively engaging in a number of accommodative monetary policy measures over the past year – including longer - term refinancing operations with a maturity of 36 months

cut in loans denominated in u. s. dollars. in closing, the recent global and euro - area crises have reminded us of the deepened financial integration and resultant greater spillover effects of shocks from one country to another. i feel that efforts to deepen an understanding of these issues could be an important first step toward achieving economic and price stability globally. thank you very much for your attention. bis central bankers ’ speeches chart 1 policy rate and lending rates in the euro area source : european central bank. chart 2 gaps between observed and expected spreads over german bonds notes : 1. actual spreads refer to 10 - year bond yields as of september 4, 2012. 2. expected spreads are based on the past relationships between yields and debt rates. source : organisation for economic co - operation and development. bis central bankers ’ speeches chart 3 money stock, monetary base, and loans in the euro area sources : bank of japan ; cabinet office ; european central bank ; eurostat. chart 4 money stock, monetary base, and loans in japan sources : bank of japan ; cabinet office. bis central bankers ’ speeches chart 5 estimated premiums charged on sovereign bond yields note : estimated premiums in japan, the united states, and the united kingdom are differences between observed and estimated 5 - to - 10 - year forward rates as of may 2012, and those in france, italy, spain, ireland, portugal, and greece are differences between observed and expected 10 - year bond yields, shown in chart 2. sources : organisation for economic co - operation and development ; bank of japan. chart 6 nominal effective exchange rates sources : bank of japan ; european central bank ; bloomberg. bis central bankers ’ speeches chart 7 basic scheme of u. s. dollar funds - supplying operations note : participated in by the central banks of canada, the united kingdom, japan, the euro area, the united states, and switzerland. chart 8 european banks ’ u. s. dollar funding costs ( 3 - month ) source : bloomberg. bis central bankers ’ speeches references caruana, jaime, “ policymaking in an interconnected world ”, luncheon speech at the federal reserve bank of kansas city ’ s 36th economic policy symposium on “ the changing policy landscape ”, bank for international settlements, 2012. ichiue, hibiki, and yuhei shimizu, “ determinants of long - term yields : a panel data analysis of major countries and decomposition of yields of japan and the us ”, bank of japan