Haruhiko Kuroda: Theory on financial markets and central banks

Speech by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the 2017 Spring Annual Meeting of the Japan Society of Monetary Economics, Tokyo, 27 May 2017.

It is a great honor to be invited to the 2017 Spring Annual Meeting of the Japan Society of Monetary Economics.

Today I would like to speak about financial markets. What immediately comes to mind when hearing the term financial markets are stock prices and foreign exchange rates, which are discussed on a daily basis in newspaper articles and news reports, and firms and individual investors are very familiar with the markets. At the same time, however, it can be said that once the discussion touches on the specific structures of transactions and pricing mechanisms, as well as interest rates, securities, and derivatives transactions, topics on financial markets turn out to be increasingly technical and require more expertise.

Over the years, I have been involved with financial markets in various positions. At the Ministry of Finance, I had daily contact with the foreign exchange markets as Japan's foreign exchange authority. At the Asian Development Bank (ADB), it raised funds necessary for development finance by issuing bonds in global financial markets. Currently at the Bank of Japan, I am deeply involved with financial markets as the Bank conducts monetary policy with a mission of ensuring price stability. Specifically, the Bank decides the guideline for market operations at Monetary Policy Meetings, which are held eight times a year, taking account of developments in economic activity and prices as well as financial conditions, with a view to achieving price stability. Based on this guideline, the Bank conducts daily market operations, such as purchases of financial assets including Japanese government bonds (JGBs) in the financial market. Apart from that, the Bank is involved in many facets of financial markets, including enhancing market infrastructures, collecting and releasing market-related data, and operating settlement infrastructure.