yukitoshi funo : economic activity and prices in japan, and monetary policy in japan speech by mr yukitoshi funo, member of the policy board of the bank of japan, at a meeting with business leaders, miyagi, 21 june 2018. * * * i. recent economic and price developments a. overseas developments i would like to begin my speech by talking about overseas economies. the business sentiment of manufacturing firms on a global basis has maintained its improving trend, and the world trade volume has continued to recover. in this situation, overseas economies have continued to grow firmly on the whole. in terms of the outlook, overseas economies are expected to continue growing firmly. according to the world economic outlook, released in april 2018 by the international monetary fund ( imf ), the global growth rate is projected to be 3. 9 percent in both 2018 and 2019. looking at developments by major region, the u. s. economy has been expanding and the european economy has continued to recover. the chinese economy has continued to see stable growth on the whole. other emerging economies and commodity - exporting economies have been recovering moderately on the whole, reflecting in particular an increase in exports and the effects of those economies ’ stimulus measures. as for the outlook, the u. s. economy is expected to keep expanding and the european economy is projected to continue recovering. the chinese economy is likely to broadly follow a stable growth path as authorities conduct fiscal and monetary policy in a timely manner. other emerging economies and commodity - exporting economies are likely to continue their moderate recovery on the whole. risk factors to the overseas economic outlook are wide ranging, as exemplified by ( 1 ) the u. s. economic policies and their impact on global financial markets, ( 2 ) developments in emerging and commodity - exporting economies, ( 3 ) negotiations on the united kingdom ’ s exit from the european union ( eu ) and their effects, and ( 4 ) geopolitical risks. in addition, uncertainty is high regarding future developments in trade policies worldwide, and therefore these developments warrant attention. i hold the view that it is important to stay vigilant regarding these risk factors, especially now that overseas economies are continuing to grow firmly. b. japan ’ s economy and prices 1. economic activity i will now discuss the economic situation in japan. japan ’ s economy is expanding moderately, with a virtuous cycle from income to spending operating. the real gdp growth rate continued to represent positive growth for eight consecutive quarters on

##gb purchases. yield curve control is designed to be flexible and highly sustainable, through which the most appropriate level of interest rates can be achieved in line with developments in economic activity and prices as well as financial conditions. 9 / 15 bis central bankers'speeches the second question, given that interest rates are set as an operating target, is whether controlling long - term interest rates is operationally feasible in the first place. it is obvious from the past year ’ s experience that the answer is “ yes ” ( chart 8 ). while central banks have a dominant power to control short - term interest rates, which can be referred to as prices of the monetary base, long - term interest rates are determined by market participants ’ outlook for future developments in short - term interest rates as well as by various risk premiums. therefore, the conventional view is that central banks can control short - term interest rates but not long - term interest rates. however, as i mentioned earlier, many central banks have been making efforts to exert influence on longer - term interest rates in order to overcome the zero lower bound, and yield curve control would be the ultimate example in terms of the range of maturity of interest rates to be controlled and the level of sophistication of such control. admittedly, controlling the interest rates is a challenge. but the bank of japan has a dominant presence in the market and has built up its experiences of large - scale asset purchases for the past few years. it conducts purchase operations in different maturities across the yield curve and is equipped with a powerful supplementary tool — the fixed - rate full - allotment operations — through which it can purchase an unlimited amount of jgbs at a certain interest rate level. therefore, i believe it is quite possible to continue to facilitate the formation of a yield curve that is deemed most appropriate for achieving the price stability target of 2 percent, although not as precisely as controlling short - term interest rates. that said, in order to form such yield curve smoothly, i want to underline the importance of closely communicating with market participants. i have full confidence in the operational skills, including this aspect, of our market operations desk. the third question, assuming that it is possible to control the level of long - term interest rates, is how to determine the desirable shape of the yield curve. under the conventional monetary policies, various benchmarks have been devised to determine the desirable level of short - term interest rates. the taylor rule would be one of the most famous