sayuri shirai : europe ’ s economic and financial developments and monetary policy in japan speech by ms sayuri shirai, member of the policy board of the bank of japan, at the 77th meeting of the society for the economic studies of securities, tokyo, 9 june 2012. * i. * * introduction good afternoon, members of the society for the economic studies of securities. my name is sayuri shirai, and i am a policy board member of the bank of japan. it is indeed a great honor and a pleasure for me to give a talk at this esteemed society. today, i would like to focus on europe, which is the common theme of today ’ s meeting, with the greater emphasis being on the euro area, where developments have shown considerable uncertainty over recent months. first, let me briefly outline the content of this presentation, which will consist of four parts. i would like to begin by describing recent changes seen in the euro area. next, i will summarize my view on the fundamental issues facing the euro area. following that, i will review the region - wide responses to the european sovereign debt crisis. in the final part, i would like to summarize recent economic and price developments in japan, the impact of the european sovereign debt crisis on the japanese economy, and japan ’ s monetary policy and related developments. 1 i very much look forward to a lively discussion with you after my talk. ii. changes in the political situation and greater emphasis on growth – two recent transformations in the euro area as we are all aware, global financial markets have been nervous in recent months following a period of some easing of strains in the first quarter of 2012. i believe that two important changes have been associated with the recent enhanced sensitivity of global financial markets : one is changes in the political situation ; the other is growing focus on growth, the interpretation of which appears to be somewhat different from what it was in the past. recent changes in the political situation with regard to political changes, i view the first event in the euro area as having been the collapse of the coalition government in the netherlands on april 23, 2012. this occurred as a result of disagreement over budget cuts. that dispute emerged because then - prime minister mark rutte had stressed the need for additional budget cuts in order to meet the 3 - percent fiscal deficit target – the common target set by the eu – by 2013. however, his minority coalition partner, the freedom party, rejected the proposal and demanded that

sentiment dampens due to a decline in real income, producing negative effects on consumption. although the year - on - year growth rate in the sri - hitotsubashi unit value price index, which i cited in my previous speech, has recently slowed down steeply, it stayed at around 2 percent throughout last year. in short, this index, which is closer to people ’ s perception of inflation because it reflects the effects of changes in the volume of products and minor product modifications, indicated a higher growth rate than consumer price statistics compiled by the ministry of internal affairs and communications. in order to achieve the price stability target of 2 percent at the earliest possible time, with a time horizon of about two years, the bank introduced quantitative and qualitative monetary easing ( qqe ) in april 2013. because more than three years have passed since the introduction of qqe, i believe it is high time that we reviewed the significance of this commitment. in this regard, i have been having uneasy feelings about the approach of aiming to achieve a specific inflation rate within a specific time frame, given the time lag required for monetary policy effects to be produced and the uncertainty over the effects. i have some doubts as to why japan alone should set a specific time frame amid the disinflationary trend around the world, including emerging economies, and whether the target can be achieved through monetary policy alone. for my part, i have not changed my position that the bank should achieve the price stability target of 2 percent as a medium - to long - term goal. i consider this as a rolling target, which means that we should constantly aim to achieve it at the earliest possible time with a time horizon of about two years. based on this idea, i submitted a proposal to revise the description in the april 2016 outlook report at the monetary policy meeting ( mpm ) in april. the recent environment surrounding consumer prices contains various unfavorable factors, such as ( 1 ) an expected delay in the improvement in the output gap due to the slow recovery in the real economy, ( 2 ) an expected lack of momentum in the pace of year - on - year wage growth following the labor - management negotiations this spring, and ( 3 ) the possibility that the yen ’ s appreciation since the beginning of the year will affect the underlying inflation trend that has been led by rising prices of food products and durable consumer goods. as is indicated by the sri - hitotsubashi unit value price index, which