system in 1969 in order to ensure the spread of banking throughout the country. whereas new private sector banks have now been introduced since the mid 1990s, public sector banks still account for 70 per cent of banking assets. these banks need to continue to perform various public policy activities, particularly in the area of agriculture, small and medium enterprises, and the cause of overall financial inclusion. this can also include certain degree of credit allocation and interest rate directions. hence, monetary transmission can get muted at the margin. the government also fixes certain administered interest rates on a number of small saving schemes and on provident funds, along with providing certain tax incentives, in the absence of well developed social security systems. as banks have to compete for funds with small saving schemes, the rates offered on long - term deposits mobilised by banks sometimes have to be set at levels higher than would have obtained under competitive market conditions. in fact, this has been observed to be a factor contributing to downward stickiness of lending rates, which has some implications for the effectiveness of monetary policy. this is a reality that we have to appreciate and live with given the absence of social security coverage and adequate safety nets in the country. these small savings schemes administered by the government through the wide reach of post offices, and some through commercial banks, provide small savers access to tax savings instruments that are seen as safe and stable. whereas they do have some impact in terms of blunting monetary transmission mechanisms, they can perhaps be seen as contributing to overall financial stability. benchmarking these administered interest rates to market determined rates has been proposed from time to time. whereas some rationalisation in schemes has indeed been done, more progress will depend on the emergence of better social security and pension systems, and perhaps easier access to marketable sovereign instruments. while the government securities market is fairly well developed now, the corporate debt market remains to be developed for facilitating monetary signaling across various market segments. we understand, however, that it has been difficult to develop the corporate bond market in most countries. almost half the world's corporate bond market is in the us, and another 15 per cent in japan. among other countries, while the uk has a long standing bond market, the european bond market has only began to really develop after european monetary integration and introduction of the euro. among developing countries, it is perhaps only south korea that has a reasonably well developed bond market. in the absence of a well developed corporate debt market, the demand for debt instruments has largely concentrated

hiroshi nakaso : evolving monetary policy - the bank of japan's experience speech by mr hiroshi nakaso, deputy governor of the bank of japan, at the central banking seminar, hosted by the federal reserve bank of new york, new york city, 18 october 2017. * * * introduction this year marks an important milestone. nine years have passed since the collapse of lehman brothers in 2008, which was one of the most visible flashpoints of the global financial crisis, and ten years have passed since what should be considered as its foreshock — the emergence of the subprime mortgage problem in 2007. the global financial crisis, which brought about severe disruptions in the global financial markets and a significant downturn in the global economy, has had various impacts on the global economy to date, including the european debt problem in the 2010s. during the decade, central banks around the globe have been facing many challenges. in addressing these challenges, central banks not only conducted conventional monetary policy such as reduction of short - term policy interest rates, but also devised and proactively adopted new policy measures called unconventional monetary policy. this reflects the fact that the monetary policy framework of each central bank has evolved in accordance with their respective economic conditions, in order to overcome the zero lower bound on short - term interest rates. at the same time, however, central banks ’ initiatives have a lot in common, and there are many cases where similar policies have been adopted. such similarities in the evolution of monetary policy are largely affected by the fact that the economies have been facing the same policy challenges during the same period in the wake of the global financial crisis, which brought about a significant shock on a worldwide scale. however, what seems more important is that central banks in the meantime have been strengthening their ties and establishing a relationship that has allowed them to learn from each other, which i think has served as the driving force for many of their monetary policies to evolve in the same direction during this period. in my speech today, i would like to express my views on the evolution of monetary policy, while looking back at the bank of japan ’ s experience to date, and then talk about the importance of cooperation among central banks. as some of you may not be familiar with japan ’ s economy and the bank of japan ’ s monetary policy conduct, i have provided for your reference a chart entitled “ japan ’ s economy and boj ’ s monetary policy ” that shows major events for japan ’ s economy and monetary policy since