october 16, 2018 bank of japan globalization and monetary policy panelist speech at bis symposium to mark the 20th anniversary of the bis representative office for asia and the pacific ( hong kong, october 15, 2018 ) haruhiko kuroda governor of the bank of japan first of all, i would like to extend my sincere congratulations to general manager carstens, dr. remolona, chief representative for asia and the pacific, and other staff members of the bis asian office on the office's 20th anniversary. over the past twenty years, the asian economies have experienced significant changes, particularly improvements in resilience to external shocks. the bis asian office has played an important role in these improvements, including by enhancing cooperation among central banks in the region. i will touch upon the importance of regional cooperation in promoting global monetary and financial stability later, but let me first discuss price and financial stability within individual economies under globalization. how has globalization affected price and financial stability? as we saw in the global financial crisis a decade ago, and in the asian financial crisis about two decades ago, global or regional financial integration did affect domestic financial stability in many countries. while financial integration facilitates consumption smoothing and diversification of risks across countries, large and volatile capital flows carry risks for global financial stability. compared with the effects on financial stability, what is less evident is how globalization has affected price stability. since bis economists, about a decade ago, proposed the hypothesis that the factors influencing domestic inflation have become increasingly global, 1 this hypothesis has attracted considerable attention. a large body of empirical studies have examined whether, and to what extent, global factors such as global economic slack and global competition have affected domestic inflation dynamics, and whether their roles have increased with global economic integration. the evidence so far, however, still seems to be inconclusive. there could be several channels through which globalization affects domestic inflation. most obviously, movements in import prices directly affect consumer prices. moreover, some global factors such as international competition pressure and cross - border price differentiation of multinational corporations could affect domestic prices without actual import flows. these channels may be captured by the global output gap and global markup of price over cost as additional explanatory variables in the standard phillips curve equation, in addition to import prices. more recently, bis economists have demonstrated that the growing 1 borio, c. and a. filardo ( 2007 ) " globalisation and inflation : new cross - country evidence on the global determinants of domestic inflation,

the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. ” obviously, there will be both upside and downside risks to economic activity and prices going forward. the bank will examine these risks carefully and will not hesitate to make adjustments as appropriate, should circumstances warrant. transmission channels of the quantitative and qualitative monetary easing i will next explain the mechanism of achieving the 2 percent target under the quantitative and qualitative monetary easing ( chart 3 ). the bank expects that the effects of monetary easing will permeate primarily through three channels. first, the purchases of jgbs, etfs, and j - reits will encourage a further decline in interest rates across the yield curve and lower risk premia of asset prices. this will raise firms ’ credit demand through a decline in funding costs. second, as a result of the bank ’ s massive purchases of jgbs, both investors and financial institutions investing in jgbs are expected to shift from jgbs to such risk assets as stocks and foreign - denominated bonds and / or to increase lending within their portfolios, which can be described as a portfolio rebalancing effect. the extension of the average remaining maturity of jgb purchases reflects our understanding of such an effect. and third, the clear commitment to achieve the price stability target at the earliest possible time and the continuation of massive purchases of assets underpinning this commitment are thought to drastically change the expectations of markets and economic entities. a rise in the expected inflation rate will not only influence actual prices but also stimulate private demand through a decline in real interest rates. outlook for economic activity and prices on april 26, 2013, the bank published the policy board members ’ forecasts for economic activity and prices for the projection period of three years – from fiscal 2013 to fiscal 2015 – in its outlook for economic activity and prices. i will now talk about the bank ’ s outlook for economic activity and prices under the quantitative and qualitative monetary easing ( chart 4 ). bis central bankers ’ speeches japan ’ s economy has started picking up. looking ahead, it is expected to return to a moderate recovery path around mid - 2013, mainly against the background that domestic demand remains resilient due to the effects of monetary easing as well as various economic measures, and that growth rates of overseas economies gradually pick up. thereafter, while the economy will be affected by the front - loaded increase and subsequent decline in demand prior to