Japan-Viet Nam Summit Meeting and Other Events
Cabinet Secretariat, Thursday, May 31, 2018
On May 31, 2018, Prime Minister Shinzo Abe held a summit meeting and other events with H.E. Mr. Tran Dai Quang, President of the Socialist Republic of Viet Nam, at the Prime Minister's Office.
The two leaders held a summit meeting, followed by a signing ceremony, an exchange of documents ceremony, and a joint press announcement.
Lastly, the Prime Minister hosted a banquet and said in his address,
“I would like to offer my heartfelt welcome to President Quang and his wife, Madam Nguyen Thi Hien, on their state visit to Japan. I am extremely pleased to welcome you both to Japan during the 45th anniversary of Japan-Viet Nam diplomatic relations.
The friendly relationship between Japan and Viet Nam is stronger than ever before, thanks to the visit to Viet Nam by Their Majesties the Emperor and Empress of Japan last spring, and this visit to Japan by President Quang and Madam Hien.
Our countries share a long, 400-year history together. When I visited Viet Nam for the Asia-Pacific Economic Cooperation (APEC) Economic Leaders' Meeting last November, I visited Hoi An Ancient Town, which had vibrant exchanges with Japan. Witnessing the historical vestiges from when it was home to many Japanese people, seeing a restoration of a ‘Shuinsen’ (shogunate licensed trading ship), and watching a Nagasaki Kunchi festival procession, which illustrated the exchanges between Japan and Viet Nam at that time, I truly felt the history of exchanges between our countries. I felt firsthand the traces of the many Japanese people that lived there in the past.
Today, the Vietnamese dish of pho is very popular in Japan. In addition to the many Vietnamese restaurants open throughout our country, instant pho is also being sold in neighborhood supermarkets. Person-to-person exchanges between our two countries have expanded greatly, supported by such feelings of affinity. Last year, approximately 800,000 Japanese visited Viet Nam, and approximately 300,000 Vietnamese visited Japan. More than 260,000 Vietnamese currently live in Japan. Among them are many who are making use of their advanced skills and experience and are active in Japanese society, including Mr. Buu Le Binh at KOGANEI SEIKI, and Ms. Tranh Thi Thu Phuong of Sojitz Corporation. I hope that we can deepen even further our relationship such that we support each other.
It is almost time for FIFA World Cup Russia. For the first time ever, Viet Nam finished second in the Asian Football Confederation U23 Championship held in January. I have high hopes for Viet Nam’s showing in the Tokyo Olympic Games two years from now, and I also hope that Japan and Viet Nam can both make it to the next World Cup four years from now.
We have invited leading figures from across the country to today’s banquet, all of whom are supporting our indispensable friendship in a variety of fields such as politics, the economy, culture, and sports, including an old friend of President Quan, Mr. Ryotaro Sugi, Special Ambassador for Japan-Viet Nam Relations. It is thanks to all your efforts that Japan and Viet Nam share such excellent relations today. I would like to take this opportunity to thank you all and ask for your continued cooperation and contribution to the further development of Japan-Viet Nam relations.
I now wish to offer a toast to the good health of President Quang, Madam Hien, and all the distinguished guests here tonight, as well as to the further prosperity of Viet Nam and the continued development of the Japan-Viet Nam relationship. Chuc suc khoe! Cheers!”
Follow-up Meeting on “Japan’s Plan for Dynamic Engagement of All Citizens
Cabinet Secretariat, Wednesday, May 30, 2018
On May 30, 2018, Prime Minister Shinzo Abe held the second follow-up meeting on the “Japan’s Plan for Dynamic Engagement of All Citizens,” at the Prime Minister’s Office.
At the meeting, there was discussion on the state of progress of Japan’s Plan for Dynamic Engagement of All Citizens.
Based on the discussion, the Prime Minister said,
“The Abe Cabinet has implemented initiatives such as the three arrows of Abenomics, regional revitalization, and human resources development towards the 100-year life society. By advancing these initiatives, we aim to realize a society in which all people, including the elderly and the young, men and women, as well as people with disabilities and those suffering from intractable diseases, can participate and are dynamically engaged.
Among the challenges to realize a society in which all citizens are dynamically engaged, work style reform is the toughest agenda. In the midst of implementing Abenomics, which I mentioned earlier, the ratio of active job openings to applicants in regular employment has surpassed 1.0 for the first time in five years. In April this year, the employment rate for university graduates has also exceeded 98%. This is the highest rate we have seen since the statistics were first compiled. In short, we have, in a sense, a labor shortage. I believe such a situation provides us with precisely the opportunity to move forward on work style reform. That is why it is necessary to firmly sustain this situation going forward, through macro- and micro-economic policies, in order to drive this reform forward and make it effective.
Concerning work style reform itself, the Diet is currently making deliberations on the work style reform bill, which cover areas such as reducing long working hours, realizing equal pay for equal work, and the creation of a ‘high-level professionals’ system. I will aim to have the bills passed during the current Diet session.
Furthermore, in regard to making early childhood education free, eliminating childcare waiting lists, and making higher education free, we will accelerate efforts to utilize funding by raising the consumption tax rate, and also put further effort into initiatives related to ‘recurrent education’ (continuing education) and university reforms. I hope that we will compile a basic design soon in the Council for Designing 100-Year Life Society.
Lack of human resources in the nursing care sector also came up in the discussion. A serious labor shortage problem is also emerging, as the ratio of active job openings to applicants reaches its highest level for the first time in 44 years. In order to accept a wide range of foreign personnel who can be immediately effective in the field, I would like to propose a new system for accepting specialized and technical foreign personnel in the Basic Policy.
Based on the views that we have received from the expert members today, I would like the relevant ministers to proceed in a speedy manner towards the implementation of further measures.”
Press Conference on the U.S.-North Korea Summit Meeting
Cabinet Secretariat, Friday, May 25, 2018
On May 25, 2018 (local time), Prime Minister Shinzo Abe held a press conference regarding the U.S.-North Korea Summit Meeting in St. Petersburg in the Russian Federation.
The Prime Minister said the following with regard to the U.S.-North Korea Summit Meeting,
“Regarding the North Korea issue, I have been coordinating closely with President Trump (of the United States) during the preparations for the U.S.-North Korea summit meeting, and President Trump and I have been in complete agreement regarding plans for and views of that meeting.
Against that backdrop, while it is unfortunate that the U.S.-North Korea summit meeting is not taking place this time, I respect and support the decision by President Trump.
The important point is that a summit meeting must serve as an opportunity to make substantial progress on the nuclear and missile issues, as well as the abduction issue, which is the most important issue of all.
Going forward, we intend to engage in firm coordination between Japan-U.S. and among Japan-U.S.-Republic of Korea, as well as with Russia, China, and other relevant members of the international community, and we will make our utmost efforts to resolve the various outstanding issues of concern with North Korea.”
In addition, in response to questions from the press on actions by Japan, the Prime Minister said,
“First of all, after returning to Japan, while I need to pay attention to the Diet session and other commitments next week, I wish to find a mutually convenient time in order to hold summit telephone talks with President Trump as soon as possible. Naturally, our National Security Councils and our diplomatic authorities are working in close coordination with one another. I would also like to speak with the President in depth about our future responses.
A Japan-Russia summit meeting is also scheduled for tomorrow. In the wake of the cancellation (of the U.S.-North Korea summit meeting), I also intend to talk with President Putin at length about our future responses.
In any case, it is important for the international community to closely coordinate its efforts. The international community needs to work in unity towards the resolution of the nuclear and missile issues as well as the abduction issue, which is the most important issue for Japan. Japan will also work hard to achieve these ends.”
Meeting with Families of Abductees and Others
Cabinet Secretariat, Monday, May 28, 2018
On May 28, 2018, Prime Minister Shinzo Abe held a meeting with families of abductees and others at the Prime Minister's Office.
The Prime Minister said in his opening address,
“Thank you for taking the time to visit the Prime Minister’s Office today on such a short-noticed invitation.
I am sure you must all be very concerned in light of the various reports in the media, such as that the U.S.-North Korea summit meeting scheduled for June 12 has been canceled or that it is scheduled to be held once again. You may also be concerned about whether or not President Trump will indeed surely raise the abduction issue when the summit meeting is actually held. Therefore, despite such a short-noticed invitation, I asked you all to come here today so that I could directly explain to you the current status of the situation. Based on my meeting with you all, I am supposed to hold a Japan-U.S. Summit Telephone Talk soon. In that meeting I intend to emphasize once again the importance of achieving the early resolution of the abduction issue.”
Courtesy Call from the United States Cherry Blossom Queen and Others
Cabinet Secretariat, Tuesday, May 29, 2018
On May 29, 2018, Prime Minister Shinzo Abe received a courtesy call from the 70th United States Cherry Blossom Queen and others at the Prime Minister’s Office.
Japan-Malaysia Summit Telephone Talk
Foreign Affairs, Tuesday, May 29, 2018
On May 24th, commencing at about 12:45 p.m. for approximately 15 minutes, Mr. Shinzo Abe, Prime Minister of Japan, held a Japan-Malaysia summit telephone talk with Tun Dr. Mahathir bin Mohamad, Prime Minister of Malaysia. The overview of the talk is as follows.
1. Prime Minister Abe congratulated Prime Minister Tun Dr. Mahathir on his victory in the recent Malaysian general election. He also stated that along with further strengthening Japan-Malaysia relations, he hopes to deepen cooperation toward regional stability and prosperity.
2. Prime Minister Tun Dr. Mahathir thanked Prime Minister Abe for his words of congratulations, and stated that he looked forward to visiting Japan soon and meeting with Prime Minister Abe.
Courtesy Call from the President of the National Assembly of France and Others
Cabinet Secretariat, Thursday, May 31, 2018
On May 31, 2018, Prime Minister Shinzo Abe received a courtesy call from H.E. Mr. François de Rugy, President of the National Assembly of the French Republic, at the Prime Minister’s Office.
Meeting of the Council on Economic and Fiscal Policy
Cabinet Secretariat, Monday, May 28, 2018
On May 28, 2018, Prime Minister Shinzo Abe held the seventh meeting in 2018 of the Council on Economic and Fiscal Policy at the Prime Minister’s Office.
At the meeting, discussions were held on the Integrated Economic and Fiscal Reforms (target year and attitude to achieve primary balance surplus) and the Outline of the Basic Policy.
Based on the discussion, the Prime Minister said,
“Today, we discussed firstly the attitude to achieve primary balance surplus, followed by the Outline of the Basic Policy.
To achieve a primary balance surplus, it is necessary to consolidate the foundation of sustainable economic and fiscal policies, focusing on social security reform, in the three years leading up to FY2022, when the baby boomer generation turns 75 years or older. Council members from the private sector spoke about at when we should set the surplus target and how we link this surplus target with the formulation of the budget for each fiscal year, by evaluating the progress of these initiatives. There was also a proposal to put in place temporary special measures in the initial budgets for FY2019 and FY2020 to address rush demand and reactionary decrease in response to the consumption tax increase in October 2019.
Based on the discussions today, I would like Minister Motegi to prepare a concrete proposal so that we can compile the Basic Policy next month.”
Forum for Consultations between the National and Local Governments
Cabinet Secretariat, Tuesday, May 29, 2018
On May 29, 2018, Prime Minister Shinzo Abe attended the first meeting in FY2018 of the Forum for Consultations between the National and Local Governments at the Prime Minister’s Office.
During the meeting, discussions took place on the formulation of the Basic Policy, and other matters.
The Prime Minister said in his opening address,
“This is the first meeting of the Forum for Consultations between the National and Local Governments in FY2018. I believe that it is vital to address important policy issues related to the regions, while utilizing this Forum and closely listening to the voices of the people. Today, with respect to the Basic Policy to be compiled this summer, I hope to have the candid views from the local governments and take them into account.
In the upcoming Basic Policy, we will present the target year by which we will achieve a primary balance surplus for the national and local governments, as well as the concrete and effective plans to achieve that.
The fundamental position of the Abe Cabinet remains unchanged. Japan will not have vitality unless its regions do as well. To create a major flow of people to local areas, we will compile a set of bold policies that are not constrained by conventional ideas and that help young people feel that opportunities do lie in the regions ahead of them.
While listening carefully to the voices of those in the regions, we will provide active support in the areas of information, human resources, and finance for the challenges towards regional vitalization and the development of local economies based on their own creative ideas, and accelerate these initiatives.
The Abe Cabinet will surely take into account the views expressed today and continue to advance our policies.”
Headquarters for the Promotion of the Tokyo Olympic and Paralympic Games
Cabinet Secretariat, Tuesday, May 29, 2018
On May 29, 2018, Prime Minister Shinzo Abe held the 12th meeting of the Headquarters for the Promotion of the Tokyo Olympic and Paralympic Games at the Prime Minister’s Office.
At the meeting, “Draft Report on the Status of Government Initiatives related to the Promotion of Preparation and Management for the 2020 Tokyo Olympic and Paralympic Games,” and the amendment to ”On a Liaison Conference for Relevant Ministries and Agencies related to the Host Towns of the 2020 Tokyo Olympic and Paralympic Games” were approved. In addition, there were reports related to “the Schedule for Main Issues and the Major Responses by the Government towards the 2020 Tokyo Olympic and Paralympic Games,” and “the Status of Preparations for the Rugby World Cup 2019.”
Based on the approvals and reports at the meeting, the Prime Minister said,
“With the conclusion of the PyeongChang Winter Olympic and Paralympic Games, it is now the turn of the Tokyo Olympic and Paralympic Games.
In order to make the Games the world’s best, and to create a new legacy, the Government has been working together in unity with the Tokyo Metropolitan Government, the Organising Committee, and the relevant municipalities.
We have just compiled the second report for the Diet on these government initiatives.
We must make the Tokyo Games historically significant one where everyone can shared its significance and experiences, welcoming participants from many countries and regions, and take this opportunity to present to the world Japan’s leading initiatives as a mature society. There are several pressing issues; the materialization of smooth transportation, flawless security measures and ensuring safety and peace of mind as well as measures for protection against the heat.
In addition, the realization of “Recovery and Reconstruction Games” and various initiatives by the host towns and other entities as well as disseminating the charms of Japanese cuisine and culture and promoting universal design are other important issues that the Government should address.
The Rugby World Cup is being held next year. The eyes of the world have been already on Japan. The Games in Tokyo are near at hand. To ensure its success, the Government will further accelerate its efforts while ensuring thorough management of the progress of the various policy measures. I call upon all Ministers to make even greater efforts for the success of the Games.”
Regular General Meeting of the National Association of Chairpersons of City Councils
Cabinet Secretariat, Wednesday, May 30, 2018
On May 30, 2018, Prime Minister Shinzo Abe attended the 94th Regular General Meeting of the National Association of Chairpersons of City Councils held in Tokyo.
The Prime Minister said in his congratulatory address,
“I would like to express my heartfelt congratulations on the successful opening of the 94th Regular General Meeting of the National Association of Chairpersons of City Councils today.
It must not be by coincidence that all the chairpersons elected in Yamaguchi Prefecture are seated before me right now. While I am feeling a bit of pressure, I vow to you that I am committed to surely respond to your requests.
Taking this opportunity, I would like to express my deepest respect for all the hard work constantly being put in by the chairpersons of city councils, who are the representatives closest to the people, at the frontlines of local governments for the development of local communities and improvement of community welfare.
In the past five years, the Abe Cabinet has continued to embark on challenges with the policies under the three arrows of Abenomics. As a result, the economy has achieved record high growth of more than 11%, while the tax revenues of national and local governments have increased by more than 24 trillion yen. The ratio of active job openings to applicants has exceeded 1.0 in all 47 prefectures for the first time in history, and the employment rate of high school graduates this spring reached 98.1%, the highest level in 27 years. For full-time employees, the ratio of active job openings to applicants has also exceeded 1.0 as the transition to permanent employment picks up speed.
This year marks 150 years since the Meiji Restoration, and Japan is now once again confronted by a national crisis, namely the rapidly declining birthrate and ageing society. In order to overcome this national crisis and further enrich the lives of the people, I am determined to confront the issue with the revolutions in productivity and human resources development, much like the wheels of a vehicle. Japan will not have vitality unless its regions do as well. Japan will have no future unless its regions do as well. This is the fundamental attitude of the Abe Cabinet.
Japan has many charms, including its rich natural environment, unique history and culture as well as agricultural, forestry, and fishery products and food products with a distinct regional character, all of which have been carefully preserved and fostered by the people of the respective regions. The attractive products of our hometowns, produced with much time and effort, have begun to make their debut in the global market. These include beef, strawberries, Japanese sake, Japanese tea, and rice. The specialties of each region are seeing a growth in exports around the world, supported by a boom in the popularity of Japanese food.
Regional vitalization and the development of local economies is about fully unleashing their potential, by making the most of the unique strengths and charms of the respective areas. The people living in these regions are the ones who know their strengths and appeal the best, and the chairpersons of city councils who are gathered here today are precisely the representatives of the cities. The motivation and passion of the regions, together with your leadership, lead to the creation of highly appealing regions. The Abe Cabinet will continue to listen carefully to their voices. On that basis, by harnessing the unique elements and characteristics that can only be found in the respective regions, we will support the efforts of regional vitalization all across Japan. I would like to ask all the chairpersons of city councils to maintain close relationships with the local residents on a regular basis to listen to a diverse range of opinions, and to continue making significant contributions going forward. At the same time, I would also like to ask once again for your understanding and cooperation on the policies put forth by our government.
I would like to conclude my address for the 94th Regular General Meeting of the National Association of Chairpersons of City Councils by extending my best wishes for the further development of the Association, and for the continued success of everyone in attendance today. Once again, congratulations on this successful gathering today.”
Japan-Mexico Foreign Ministers’ Meeting
Foreign Affairs, Thursday, May 24, 2018
On May 24, commencing at 2:45 p.m. (local time) for approximately one hour and 45 minutes, Mr. Taro Kono, Minister for Foreign Affairs, on his visit to the United Mexican States, held a lunch meeting with H.E. Dr. Luis Videgaray Caso, Secretary of Foreign Affairs of Mexico, at the Mexican Secretariat of Foreign Affairs. The overview is as follows.
1. Minister Kono expressed his pleasure to visit Mexico on the occasion of the 130th anniversary of the establishment of diplomatic relations, and he intends to further strengthen collaboration between the two countries as strategic global partners that share fundamental values, toward resolving the international community’s various problems.
In response, Secretary Videgaray expressed congratulations that the two countries, which enjoy a relationship of trust, are celebrating the 130th anniversary of the establishment of diplomatic relations, and explained that Mexico also intends to keep cooperating closely with Japan, as its primary partner in Asia.
2. With regard to the Trans-Pacific Partnership, Minister Kono highly evaluated that Mexico was the first country to approve the TPP11 agreement among participating countries. Furthermore, the two sides shared the view that the TPP has a strategic importance that will lead to a new order in the Asia-Pacific region, and that they will continue to collaborate toward its early entry into force.
3. The two ministers confirmed that the economic relationship between the two countries is unprecedentedly close, and with regard to the renegotiation of the North American Free Trade Agreement (NAFTA), Secretary Videgaray stated that Mexico will continue to consider the interests of Japanese companies. Minister Kono expressed gratitude in response.
4. With regard to North Korea, Minister Kono explained Japan’s basic position after the announcement by the United States that the U.S.-North Korea Summit Meeting on June 12 was cancelled, and Secretary Videgaray expressed support for Japan’s position. The two ministers shared the view that Japan and Mexico would continue to collaborate closely.
5. In addition, the two sides exchanged views on cooperation in the international arena, including disarmament and nonproliferation, climate change and issues relating to artificial intelligence (AI), as well as on regional affairs, including the situation in Venezuela.
Suspicion of illegal ship-to-ship transfers of goods by JI SONG 6, North Korean-flagged tanker, and small vessel of unknown nationality
(May 19, 2018)
Foreign Affairs, Tuesday, May 29, 2018
At midnight on May 19, 2018, a P-3C aircraft of Japan Maritime Self-Defense Force (Fleet Air Wing 1 P-3C : Kanoya) found that JI SONG 6（IMO number：8898740）, North Korean-flagged tanker, was lying alongside a small vessel of unknown nationality flying a flag that seemed like Chinese-flag, on the high sea (around 350 km southeastern offshore of Shanghai) in the East China Sea.
Judging from the fact that the two vessels lay alongside each other with their lights turned on at night and connected hoses, both vessels could have been engaged in some type of activity. Following a comprehensive assessment, the Government of Japan strongly suspects that they conducted ship-to-ship transfers banned by UNSCR.
In March, 2018, the Security Council Committee established pursuant to Resolution 1718 designated JI SONG 6 as a vessel subject to assets freeze and prohibited from port entry.
2. Japan’s Response
Japan notified the Security Council Committee of this incident and shared information with related countries. Japan also expressed its interest to China which could have relation to small vessel of unknown nationality.
Press Conference by Defense Minister Onodera (10:28-10:40 A.M. May 30, 2018)
Ministry of Defense, Wednesday, May 30, 2018
Press Conference by the Defense Minister
Time & Date: 10:28-10:40 A.M. May 30, 2018
Place: Royal Hawaiian Hotel
Remarks: Defense Minister Onodera's visit to Hawaii (Meeting with Admiral Harris of the U.S. Indo-Pacific Command and Admiral Davidson, Elected Commander of the U.S. Indo-Pacific Command, Japan-U.S. Defense Meeting)
(This is a provisional translation of an announcement by the Defense Minister and the Q&A session at the subsequent press conference for reference purposes only.)
The original text is in Japanese.
Today, I held a Japan-U.S. Defense Ministerial Meeting with Secretary of Defense Mattis. Regarding the North Korea issue, I conveyed our recognition of the importance of using the U.S.-North Korea Summit Meeting as an opportunity to make progress on the issues of nuclear weapons, missiles, and abductions. Secretary of Defense Mattis shared recognition of the importance maintaining pressure and sanctions, and changing North Korea's policies with the cooperation of the international community based on the policy of seeking North Korea's complete, verifiable, and irreversible destruction of all of its weapons of mass destruction, including biological and chemical weapons, and missiles of various ranges.
In particular, I confirmed firm agreement with Secretary of Defense Mattis on the importance of the abduction issue and the need to seek the destruction of short range missiles. From this perspective, I also reconfirmed the importance of maintaining initiatives to prevent illegal ship-to-ship transfers by North Korea with the cooperation of like-minded countries such as the U.K., Australia, and Canada, and the importance of the deterrence strength of the U.S. in the region, including the U.S. Forces in the Republic of Korea (ROK). Secretary of Defense Mattis additionally expressed the commitment of the U.S. to the defense of Japan, and agreed to pursue close communication to allow cooperation as allied nations under all circumstances.
We then exchanged opinions regarding regional issues, such as the continued monitoring of conditions in the East China Sea, and cooperation to maintain peace and stability based on China's continued attempts to unilaterally change the status quo in the East China Sea and South China Sea through coercion. We also agreed the importance Japan and the U.S. continuing their monitoring of the South China Sea.
We additionally agreed that we will work to increase the deterrence and response strength of our alliance through cooperation between the Japan and the U.S. to maintain peace and stability in the region and initiatives to increase defense capability while monitoring China's increasing militarization and activities in the maritime and airspace surrounding Japan. Additionally, while confirming the importance cooperating with allied countries and a diverse ranges of partners to realize a free and open Indo-Pacific ocean, it was agreed that Japan and the U.S., and Japan, the U.S. and Australia would cooperate to promote policies such as the dissemination of fundamental values such as the freedom of overflight and capacity building assistance.
In closing, I reiterated to Secretary of Defense Mattis to ensure the safe operation of the U.S. military, and cooperation in initiatives to gain the understanding of local residents, including those of Okinawa. Continuing from the previous Japan-U.S. Defense Ministerial Meeting, I believe it is highly significant that we could confirm that the policies of Japan and the U.S. are in agreement regarding the North Korea issue amidst ever-changing circumstances. We were also able to frankly exchange opinions on a wide range of topics, such as achieving a free and open Indo-Pacific ocean.
I would like to continue working towards the resolution of regional issues based on a relationship of trust with Secretary of Defense Mattis. Furthermore, prior to the Japan-U.S. Defense Ministerial Meeting, I exchanged opinions with Admiral Harris, current Commander of Pacific Command, and Admiral Davidson, next Commander of Pacific Command. While exchanging opinions regarding the North Korea issue and other matters, I requested the cooperation of the U.S., starting with the Chief of Staff, the Joint Staff, with the Ministry of Defense (MOD) and Japan Self-Defense Forces (SDF).
2. Questions and Answers
What did Secretary of Defense Mattis say about the outlook for the U.S.-North Korea Summit Meeting in the meeting with you?
I understand that the U.S.-North Korea Summit Meeting will take place on June 12, and we shared views on the state of preparations and outlook. However, I would like to refrain from mentioning details.
Is coordination basically taking place toward a meeting on June 12?
Things are currently moving in that direction. However, we have to see what happens as to how the situation ultimately unfolds.
You exchanged opinions regarding U.S. military service members in the ROK. What specifically was discussed?
We shared the view that U.S. forces in the ROK play a very important role in regional stability. While various negotiations are likely to occur, Japan and the U.S. agreed on the importance of U.S. forces in the ROK.
Could you explain anything you can about the type of exchange you had?
The meeting started with frank discussion of our approach to the U.S.-North Korea Summit Meeting. It then proceeded to matters of interest to related countries, including Japan. This meeting covered clear confirmation of each of these matters.
Regarding mid-range and short-range missiles, did you raise this topic with Secretary of Defense Mattis?
Japan and the U.S. already have a shared understanding, and we presented our points of interest to the U.S. side at the previous Defense Ministers' Meeting. At this meeting, the U.S. side explained voluntarily its intention to firmly pursue these issues.
Was there any specific exchange on the abductions issue?
Secretary of Defense Mattis addressed the abductions issue with a detailed understanding, including mention of Ms. Megumi Yokota.
You noted "agreement on the importance" of U.S. forces in the ROK. Given this point, did you agree that U.S. forces in ROK should not be reduced or withdrawn in dialogue between the U.S. and North Korea?
We agreed that the importance of U.S. forces in the ROK means that they play an extremely vital role in East Asia.
What is Secretary of Defense Mattis' opinion on reduction or withdrawal of these troops?
We agreed on the importance of U.S. forces in the ROK.
Is it thus correct to assume that the U.S. opposes reduction or withdrawal?
At the very least, there was no mention of their reduction or withdrawal.
Yesterday, there was a report of an incidence of ship-to-ship transfer for the first time in a while. What type of response is planned?
Japan is involved in this, and cooperation is also taking place between Japan and the U.S. and with Canada, Australia, and other countries. A U.K. naval vessel previously cooperated as well. We will continue these activities as part of the initiatives of the international community.
My sense is that the number of reports has declined considerably since discussion of holding the U.S.-North Korea Summit Meeting emerged. Does Japan plan to actively disclose incidents and report them to the United Nations?
Our stance has not changed from previously.
I would like to confirm again on the abductions issue and short-range and mid-range ballistic missiles. Did you once again request the U.S. side to raise these issues with the North Korean side at the U.S.-North Korea Summit Meeting?
Rather than us raising these topics, the U.S. side expressed a clear recognition of these issues and Secretary of Defense Mattis explained that the U.S. side understands their importance. Japan thereby confirmed that this existing view continues to be shared by Japan and the U.S. side.
I have a question about the role of the United States Pacific Command (PACOM). Could you explain the importance of PACOM to Japan's national security in the context of the Chinese and North Korean issues it faces?.
PACOM is a core component of the U.S. military that covers very broadly from the Pacific Ocean to the Indian Ocean. Our mutual understanding is that if an incident occurred for Japan, PACOM would be involved in Japan's defense. East Asia is a region with many highly unstable factors, including the emergence of China's military power, the recent strengthening of the Russian military in the Far East, and North Korea's repeated nuclear and missile tests, and Japan believe that PACOM plays a very important role in maintaining the security of this region.
Tomorrow's PACOM change of command ceremony marks the departure of Admiral Harry B. Harris Jr., who is very knowledgeable about the Asia-Pacific region and is known for taking a hardline stance toward China, and the arrival of Admiral Philip S. Davidson, whose military career has mainly been in the Atlantic. Do you see any impact from this change or have any concerns?
First, Secretary of Defense Mattis recognizes the importance of this region. Based on his comments at the Senate hearing and other fora, we think the newly-appointed Admiral Davidson also has a very clear understanding of the importance of this region and a firm recognition of matters relating to China, and is likely to work earnestly for the security of the region.
Did you confirm the importance of collaboration between Japan and the U.S. at your meeting today with Admiral Davidson?
This is the first time that a Japanese Defense Minister will attend the change of command ceremony of PACOM. We are utilizing the opportunity to hold a Japan-U.S. Defense Ministers' Meeting and thereby send a very powerful message to the international community. Our demonstration of close collaboration between Japanese and U.S. defense authorities to resolve the issue of North Korea fosters pressure and also contributes to diplomatic strength. The Japan-U.S. Defense Ministers' Meeting held this time hence possesses considerable meaning.
President Trump appears to have recently told Japan and the ROK that they will need to shoulder a substantial portion of the costs if the U.S. military engages in military action. Was this type of discussion conducted at the meeting?
No, not at all.
This is what President Trump has been saying. Has there been talk with the U.S. military about Japan and the ROK covering the cost?
I am not aware of any such talk at all.
You visited Hawaii this time despite resistance from the opposition parties. Could you please describe the significance of this Japan-U.S. Defense Ministers' Meeting once again?
There was no overlap with any of the Diet's committee meetings, and my itinerary does not interfere with Diet operations. I believe it is important for the Japanese defense authorities to confirm Japan's stance amid heightened focus on the issue of North Korea among the international community and increased activities related to the U.S.-North Korea Summit Meeting. In any case, after returning to Japan following these meetings, I intend to given an in-depth explanation to the Diet and endeavor to secure the understanding of the opposition parties.
[Speech] Economic Activity, Prices, and Monetary Policy in Japan
Bank of Japan, Thursday, May 24, 2018
I. Economic Activity at Home and Abroad: Recent Developments and the Outlook
A. Overseas Economies
Let me start with developments in overseas economies.
Overseas economies have continued to grow firmly on the whole. Trade activity was sluggish globally following the financial crisis of 2008, but it has been recovering markedly recently. Under these circumstances, as favorable effects spill over from advanced to emerging economies, the momentum toward recovery is spreading to broader regions. Global financial markets, which became somewhat unstable from February, have been regaining calmness of late.
Looking at developments in detail, the U.S. economy has been expanding. As exports have been on an increasing trend, business and household sentiment is improving as well. Expansionary fiscal measures taken by the U.S. government are also expected to push domestic demand upward in the short term. The European economy also has continued to recover firmly as a trend. Although several economic indicators have showed signs of a slowdown recently, this is considered to be due to temporary factors such as a reaction to the high growth that continued until the end of 2017, unfavorable weather conditions, and industrial strikes.
Among emerging economies, the Chinese economy has continued to see stable growth on the whole. Exports have been increasing, and domestic demand has continued to be firm, underpinned by growth in public investment. In the NIEs and the ASEAN countries, exports have been following an uptrend, and domestic demand has been resilient on the back of the improvement in business and household sentiment and economic stimulus measures taken by their authorities. Commodity-exporting economies such as Brazil, Russia, and South Africa have been recovering moderately as their central banks have been engaging in monetary easing following the declines in their inflation rates.
Since February 2018, global financial markets, mainly in the United States, have exhibited unstable movements. However, this is considered to represent a strong reaction to the steep stock price rise from the latter half of 2017, which was partly caused by expectations for fiscal expansion in the United States, and to the overheated speculative trading in some countries of financial products, betting on a decline in financial market volatility. Recently, as these developments have subsided, global financial markets seem to be regaining calmness.
As for the outlook, overseas economies are expected to continue growing firmly. As trade activity in the manufacturing sector has stayed firm globally, advanced and emerging economies are expected to grow in a well-balanced manner. According to the April 2018 World Economic Outlook (WEO) released by the International Monetary Fund (IMF), the global growth rate was projected at 3.9 percent in each of 2018 and 2019, up slightly from 3.8 percent in 2017.
B. Recent Developments in Japan's Economy
Next, I will discuss developments in Japan's economy.
Japan's economy is expanding moderately, with steady growth in overseas economies as well as highly accommodative financial conditions and government spending. A virtuous cycle operating from income to spending has become stronger in both the corporate and household sectors, and the economy is in the process of shifting from growth led by external demand to more self-sustaining growth accompanied by a recovery in domestic demand. The economy recorded positive growth for the eighth consecutive quarter until the end of 2017. Although it marked small negative growth in the January-March quarter of 2018, this was due to temporary factors such as unfavorable weather conditions. As relatively high economic growth has continued as a trend, the positive output gap -- an indicator of the utilization of capital and labor -- has been widening steadily. Amid the growing supply-side constraints in some sectors of the economy, firms are taking measures to enhance supply capacity, such as increasing their labor force, making business fixed investment that is intended to promote labor saving and expand production capacity, and streamlining their business processes. As a result, Japan's economy has maintained well-balanced growth on both the demand and supply sides.
Looking at developments in more detail, in the corporate sector, exports have been on an increasing trend on the back of the firm growth in overseas economies. For example, here in Gunma Prefecture, exports, particularly of transportation machinery, showed strength. A factor contributing to the strength in overall exports is the growth in inbound demand led by the increasing number of visitors to the World Heritage site Tomioka Silk Mill and to popular hot springs. As Japan's economy has continued to grow moderately, corporate profits and business sentiment also have maintained their improving trend. While labor shortages have continued and supply-side constraints gradually have become apparent, as evidenced by delays in procurement of some components in the manufacturing sector and an increase in front-loaded orders placed in anticipation of future delays, firms are becoming more active in making business fixed investment intended to promote labor saving and expand production capacity. According to the Bank's March 2018 Tankan (Short-Term Economic Survey of Enterprises in Japan), the diffusion index for business conditions for all industries and enterprises improved for the seventh consecutive quarter, reaching the highest level since 1991.1 Business fixed investment plans for all industries and enterprises, including financial institutions, showed a relatively strong year-on-year increase of 4.3 percent for fiscal 2017 and 2.0 percent for fiscal 2018.
Let us turn to the household sector. Labor market conditions have tightened steadily as the number of employees has increased. The active job openings-to-applicants ratio has surpassed the peak level observed during the bubble period. The unemployment rate is 2.5 percent, a level that essentially represents a situation close to full employment. Firms are making active efforts to secure their labor force while expanding the scope of workers who may be employed and are promoting a shift from non-regular to regular employment. Wages of part-time employees, which are responsive to labor market conditions, have risen markedly. Although wages of regular employees -- the majority of employees -- have continued to increase only moderately, there are signs of gradual yet stronger improvement in wages. For example, the growth in base pay in fiscal 2018 is projected to exceed the actual growth of a year earlier, as in the previous year, and the share of firms raising wages of regular employees is growing. With the employment and income situation improving, as I have mentioned, private consumption also has been increasing moderately.
The diffusion index for business conditions is calculated as the proportion of firms responding that business conditions were "favorable" minus the proportion of those responding that they were "unfavorable."
C. Outlook for Japan's Economy
As for the outlook, Japan's economy is likely to continue its moderate expansion, supported by the highly accommodative financial conditions and stimulative fiscal measures. In line with the firm growth in overseas economies, exports are likely to maintain their increasing trend. As a virtuous cycle operating from income to spending is being maintained in both the corporate and household sectors, business fixed investment and private consumption are also likely to follow an uptrend. I believe that the impact of the consumption tax hike scheduled for 2019 is highly uncertain, yet most likely to be smaller than the impact of the tax hike in 2014. At the time of the previous consumption tax hike, the last-minute rise in demand before the hike and the ensuing fallback in demand turned out to be strong, particularly with respect to high-priced products, not only because the margin of the hike was large but also because a second tax hike was expected down the road. Application of a reduced tax rate on some products and policies concerning the provision of free education will also contribute to lightening the burden on households.
According to the April 2018 Outlook for Economic Activity and Prices (hereafter the Outlook Report) released by the Bank, the median of the Policy Board members' forecasts of the real GDP growth rate in fiscal 2018 was 1.6 percent. This represents a slight upward revision of the forecast made three months ago. In fiscal 2019 and 2020, the growth rate is expected to decline to around 0.8 percent, a level close to the potential growth rate, because of such factors as a cyclical slowdown in business fixed investment and a fallback in Olympic Games-related demand.
Needless to say, the outlook is not free from uncertainty. Among the main risks, we must keep a watchful eye on overseas factors. In particular, I am concerned about a possible spread of protectionist measures in trade policy. In the past, trade and investment liberalization, coupled with the advances in technological innovation, has driven global economic growth. As new technologies have been disseminated through trade and investment activities, productivity improvement and further technological development have been promoted across the regions. If the protectionist mood gains traction and constrains trade and investment, the global economy could be deprived of its main growth engine. Moreover, uncertainty over the U.S. economic policy management is growing. If the inflation rate accelerates or concerns over the deterioration of the fiscal balance grow while favorable economic conditions continue and the government implements expansionary fiscal measures, there is a risk that interest rates will shoot up, triggering a stock price plunge and changes in the global flow of funds. In addition, we must keep a watchful eye on the negotiations on the United Kingdom's exit from the European Union (EU) and geopolitical risks related to North Korea and the Middle East. All these risk factors could significantly affect Japan; therefore, while continuing to pay due attention to them, the Bank will closely examine developments at home and abroad.
A. Current Situation
Next, I will turn to price developments. The year-on-year rate of change in the consumer price index (CPI) for all items less fresh food for April, which was released on May 18, 2018, was 0.7 percent. The rise in energy prices has contributed considerably to the increase in the CPI. Meanwhile, the increase in the CPI for all items less fresh food and energy for April remained only moderate, with the year-on-year rate of change standing at 0.4 percent.
Despite the continued improvement in economic conditions, the growth in wages and prices has been sluggish, and various factors have been pointed out as the causes. I am paying particular attention to the changes in the economy's supply capacity. For example, while the tightness in labor market conditions has been highlighted by the media, the labor force participation rate, which had been trending downward, has started to rise, partly as a result of various initiatives conducted by the government and firms. In addition, the number of employees who have reluctantly accepted non-regular employment -- due to a lack of opportunities to work as regular employees -- is declining. This is because firms are promoting a shift from non-regular to regular employment in order to retain their labor force. Firms also have made progress with such activities as making business fixed investment intended to promote labor saving and streamlining their business processes. 2 All of these changes lead to an expansion of the economy's supply capacity in terms of labor input and labor productivity. I believe that such expansion appears to be easing the upward pressure on wages and prices associated with an increase in demand.
2The annex to the Regional Economic Report (available only in Japanese) released in December 2017 presents some cases of firms' initiatives taken toward improving productivity.
That being said, I do not believe that the sluggish growth in wages and prices will continue forever. There are certain limits to the extent of such activities as raising the labor force participation rate, promoting a shift from non-regular to regular employment, and streamlining business processes. In the longer term, the effects of the expansion of supply capacity in curbing growth in wages and prices are expected to decline in due course.
Meanwhile, the expansion of the economy's supply capacity will strengthen the economy's growth potential. If expectations for growth increase on the back of the continued expansion of supply capacity, thereby increasing expectations of households regarding permanent income and of firms about future earnings, this may push up wages and prices through active consumption and business fixed investment.
As I explained so far, although the recent expansion of the economy's supply capacity may delay growth in wages and prices in the short term, it is unlikely to become a factor that will keep wages and prices at low levels in the long term. As wages and prices start increasing, the public's inflation expectations are likely to rise through the adaptive formation mechanism. Therefore, my judgment is that the momentum toward achieving the Bank's 2 percent price stability target is being maintained. According to the April 2018 Outlook Report, the medians of the Policy Board members' forecasts of the year-on-year rate of change in the CPI for all items less fresh food were 1.3 percent for fiscal 2018 and 1.8 percent for fiscal 2019 and 2020, excluding the effects of the consumption tax hike.
III. Monetary Policy
A. Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control
In September 2016, the Bank introduced QQE with Yield Curve Control as a new framework for strengthening monetary easing. This framework consists of two main components.
One of the two is yield curve control, whereby the Bank facilitates the formation of short- and long-term interest rates that are considered most appropriate in light of the 2 percent price stability target. In the Bank's current guideline for market operations, the short-term policy interest rate is set at minus 0.1 percent and the target level for yields on 10-year Japanese government bonds (JGBs) is set at around 0 percent. This is intended to support proactive economic activities by Japanese firms and households through maintaining highly accommodative financial conditions.
The other main component is the inflation-overshooting commitment. This represents the Bank's strong commitment to continuing to expand the monetary base until the observed year-on-year rate of increase in the CPI, for all items less fresh food, exceeds the price stability target of 2 percent and stays above the target in a stable manner. In Japan, the inflation rate has remained stable at low levels over a long period of time. For Japanese firms and households, the low inflation rate has become a quite natural condition that serves as a premise for conducting economic activities. Going forward, in order to raise prices in a stable manner, it is necessary to encourage firms and households to change their behavior patterns by making them actually experience an inflation rate higher than 2 percent.
B. Future Conduct of Monetary Policy
In light of the recent relative weakness of prices, I believe that it is appropriate for the Bank, for the time being, to maintain the accommodative financial conditions with persistence under the current policy framework. While doing so, the Bank needs to keep in mind the following two factors.
First, it is necessary to keep a careful watch on preventing a significant supply-demand imbalance. As I mentioned earlier, the pace of the expansion of the economy's supply capacity eventually may slow in the longer term. Meanwhile, yield curve control contains a mechanism of amplifying its own easing effect as inflation expectations rise and the economy's growth potential increases. In this respect, it is possible that changes in the supply-demand balance will occur in line with the slowdown in the pace of expansion of the supply capacity and the strengthening of the effects of demand-stimulating measures taken on the monetary front. If a significant deterioration in the supply-demand balance is left unattended for a long time, this may unnecessarily cause sharp economic swings. I will discuss this point later in more detail.
Second, it is necessary to pay due attention to not making the financial system unstable by maintaining accommodative financial conditions over a long period of time. According to the Bank's assessment presented in the April 2018 Financial System Report, although Japan's financial system as a whole is not showing any sign of overheating, some indicators, such as the lending attitudes of financial institutions, are very close to a state of overheating. Furthermore, if the low interest rate environment continues and downward pressure on financial institutions' profits becomes prolonged, the functioning of financial intermediation may be undermined.
I believe that the Bank will need to review these points at each Monetary Policy Meeting and, as necessary, consider in earnest the most appropriate monetary policy.
IV. Changes in the Economy's Supply Capacity and Conduct of Monetary Policy
So far, I have mentioned several factors associated with the expansion of the economy's supply capacity as the causes of the delay in growth in wages and prices. From now, although there will be a degree of overlap with some of the points I have touched upon earlier, I will discuss somewhat longer-term changes in the supply capacity of Japan's economy and how monetary policy should be conducted in response to the changes.
A. Changes in the Economy's Supply Capacity
In Japan, various changes have taken place in the economy's supply capacity since the 1990s due to deficient demand and deflation that have lasted for a protracted period. Based on the experience of struggling to overcome excessive employment, firms tightened their employment stance and promoted a shift to non-regular employment. Consequently, an increasing number of people gave up on seeking jobs or reluctantly accepted non-regular employment as they could not obtain their ideal jobs. In addition, because firms reined in new business fixed investment in order to reduce excess production capacity, their capital stock became obsolete and new technologies were not necessarily introduced actively. Moreover, excessive competition among firms to provide extravagant services or excessively cut the prices of their services or products was seen everywhere, and this may have led in part to the decline in labor productivity. The mechanism by which an economic downturn, which fundamentally is a cyclical phenomenon, exerts downward pressure on the economy's long-term growth potential by affecting the supply capacity is called "hysteresis." In Japan, the hysteresis has indeed occurred under the successive and serious economic downturns.
On the other hand, recently, the economy's supply capacity appears to be expanding rapidly with the waning effects of hysteresis that occurred in the past. For example, there are increasing opportunities for those who potentially have the willingness to work to participate in the labor market and for those who have reluctantly accepted non-regular employment to obtain regular employment. Firms are also starting to undertake postponed business fixed investment, and are proceeding with efforts to streamline their business processes through suspending the provision of extravagant services and reassigning employees to new positions. As labor input has increased and labor productivity has risen through these changes, the long-term growth potential of Japan's economy, which declined substantially in the past, is gradually strengthening again. Currently, Japan's economy may be referred to as being in a rehabilitation process to regain its fundamental strength.
The effects of hysteresis have been pointed out in overseas economies as well. These effects have attracted increased attention, especially as the economic growth trend has shifted downward globally since the financial crisis in the latter half of the 2000s. Since the early 1990s, however, the growth trend in Japan's economy has marked falls ahead of those in other economies following each successive and serious economic downturn. In this respect, there is a possibility that the effects of hysteresis remain relatively strong in Japan. For example, Japan's low labor productivity is well known as being lower than that of other advanced economies. If we take a look at this situation from another perspective, it can be said that there is ample room for Japan to expand its economy's supply capacity as the effects of hysteresis dissipate. Indeed, Japan's labor productivity recently has been improving at a relatively fast pace to catch up with other economies.
The expansion of the economy's supply capacity, in the short term, has been working in the direction of easing the upward pressure on wages and prices associated with an increase in demand. However, there is no need to be unduly pessimistic about the current situation. As I mentioned earlier, the momentum toward achieving the price stability target is being maintained. In addition, we should not focus solely on raising prices. It is desirable that prices rise moderately as the quality of people's lives improves. Recently, an increasing number of people are participating in the labor market in ways that meet their wishes, and firms are promoting a shift to more efficient and adequate work practices. As a result, the economy's long-term growth potential is also beginning to be raised. I believe that these changes will indeed enrich people's lives.
B. Framework of Monetary Policy
Based on what I have presented, I would now like to reconsider the framework of monetary policy. My view is that monetary policy should aim at maintaining somewhat tight supply-demand conditions, which are currently in place, for as long as possible.
As I have explained, I believe that Japan's economy at present, except for sluggish inflation, is in a very favorable condition. Driven by an increase in demand, various benefits stemming from the expansion of the supply capacity have been brought about. It is possible that these benefits are relatively large as the adverse effects of hysteresis that occurred in the past have remained strong in Japan.
Of course, this does not mean that a rise in prices is unwelcome. The Bank should achieve the price stability target at the earliest possible time. Note, however, that we should not misunderstand the meaning of "at the earliest possible time." This does not mean that the Bank should try to achieve the target at whatever cost. Its mission, as stipulated in the Bank of Japan Act, is "achieving price stability, thereby contributing to the sound development of the national economy." If sound development of the economy is hindered as a consequence of a rise in prices, this will confuse the essential with the unessential.
For example, because of the relatively slow pace of change in the supply capacity, if the pace of increase in demand accelerates, prices might rise significantly due to increased supply-side constraints. However, if economic swings amplify in this way, there is concern that various harmful effects, such as a decline in the efficiency of resource allocation, might arise. The Bank will then be rushed into tightening its monetary policy, possibly resulting in the reversal of hysteresis left undone. Most of all, price rises attained in this way will not be stable over the long term, and nobody will want such a circumstance.
With the understanding just described, it is essential to aim at achieving the price stability target while benefiting from the waning effects of hysteresis brought about by maintaining somewhat tight supply-demand conditions. I should add that there is no universal monetary policy measure that should be taken to this end. As I mentioned earlier, from a somewhat longer-term perspective, the room for expanding the economy's supply capacity will narrow in due course as the effects of hysteresis dissipate further. On the other hand, if inflation expectations rise or the economy's long-term growth potential increases, the demand-stimulating effects of yield curve control will strengthen. On this point, when conducting monetary policy in the future, I believe that the Bank, as necessary, should consider without prejudgment the most appropriate policy while paying close attention to preventing a significant supply-demand imbalance that might be caused by the described changes in the external environment.
C. Uncertainty and Communication
Lastly, I would like to point out that there is a certain degree of uncertainty over how the economy's supply capacity will change in the future. There are various arguments concerning the extent to which the adverse effects of past hysteresis can be reversed; apparently, no consensus has been reached in academic or other circles. Moreover, as a matter of course, changes in the supply capacity of Japan's economy are attributable not only to hysteresis but also to more structural factors, such as demographics. Therefore, it is difficult to accurately make a forecast on the extent to which the expansion of the supply capacity of the economy will be maintained and how long this expansion will constrain price rises.
In relation to this, the fact that the Bank deleted the description on the projected timing of reaching around 2 percent inflation in the April 2018 Outlook Report became an issue for the public. I believe that indicating the projected timing itself is meaningful, but this "projection" tended to be perceived by some market participants as a "deadline," thereby creating unnecessary speculation about the Bank's policy conduct. As I have explained, monetary policy should be conducted by taking into consideration various uncertainties, and therefore it is undesirable to attract excessive attention merely to specific timing or a numerical value. Based on these points, I have judged that deleting the description of the projection in the Outlook Report is unavoidable. I believe that providing a detailed and articulate explanation on the mechanism of price rises and on the assessment of risks will lead to more appropriate communication with market participants.
Today, I have expressed my views on changes in the supply capacity of Japan's economy and how monetary policy should be conducted in response to these changes. The Bank will persistently pursue monetary easing measures and provide its utmost support for the sound development of the national economy by ensuring price stability. Under such circumstances, I hope to see continued proactive initiatives and efforts by firms and the government.
Opening Remarks at the 2018 BOJ-IMES Conference Hosted by the Institute for Monetary and Economic Studies, Bank of Japan
Bank of Japan, Wednesday, May 30, 2018
Good morning. I am honored to welcome distinguished guests from academia and central banks to the 24th International Conference hosted by the Institute for Monetary and Economic Studies. On behalf of conference organizers, I thank all of you here who have kindly taken time out of your busy schedules to participate in this one-and-a-half-day conference in Tokyo.
The topic of this year's conference is "Central Banking in a Changing World." Over the past few years, our conferences focused on monetary policy issues, yielding important insights and suggestions for the conduct of monetary policy after the Global Financial Crisis. This year's conference expands its scope from monetary policy to "central banking," that is to say, central bank policies and operations on the whole. Behind this is the fact that global structural changes in recent years influence not only central bank policies such as monetary and prudential policies, but also central bank operations such as the issuance of currency and the operation of payment and settlement systems, which provide basis for the conduct of central bank policies.
As these changes span a wide range of areas, I think it is helpful to briefly outline recent changes in the global economic and financial environment, especially which are deemed important for central banks.
II. A Changing World and Central Banks
In recent years, the global economic and financial environment surrounding central banks has changed significantly. Global trade activity has gathered strength again following years of lackluster growth in the wake of the Global Financial Crisis. Against the backdrop of the favorable global economic environment, investment activity by financial institutions and other investors around the world has become increasingly active. Along with these developments, economic and financial linkages between countries have been strengthening. This increased interconnectedness is, of course, desirable for the global economy, as it reflects ongoing globalization. But at the same time, partly due to the recent dynamics of political economy and geopolitics, the size of global shocks has been increasing, and the spread of global economic shocks has been presenting a great challenge for central banks.
Regarding the conduct of monetary policy, changes in price and wage dynamics have attracted keen attention in both academia and central banks, especially those in advanced economies. As the adverse effects from the Global Financial Crisis subside, the unemployment rate has dropped in many countries and the real economy has improved substantially, partly due to the effects of large-scale macroeconomic policies. Despite these improvements in the real economy, prices and wages have remained sluggish. This phenomenon has recently been labeled the "missing inflation" or "missing wage inflation" puzzle. Looking back on the discussions at our conference last year, adaptive elements in inflation expectations formation were highlighted as a possible factor behind the missing inflation. It is urgent that we explore the mechanism behind the changes in price and wage dynamics especially in advanced economies.
Turning to the financial system, after ten years since the outbreak of the Global Financial Crisis, the robustness of the global financial system has been enhanced through the efforts of financial authorities, which include the finalization of Basel III, and those of financial institutions to strengthen their risk management practice. However, it is necessary to pay attention to developments in the so-called shadow banking sector, which is not sufficiently covered by conventional supervision and regulations. Moreover, in recent years, the low profitability of financial institutions, especially in advanced economies, has come to pose a new challenge for global financial stability. As such, central banks are faced with new challenges in terms of financial stability as well.
From a longer perspective, central banks are faced with an important challenge posed by innovations in information and communication technology. We see remarkable progress in a wide range of technologies, such as artificial intelligence, big data analysis, and distributed ledger technology. We also see the rapid development of smartphones, social network services, and e-commerce. The application of these technologies in the field of financial business, typically dubbed "FinTech," has already brought about drastic changes in the way payments are made in many countries. These developments are expected to continue in the future, promoting further changes in business models at financial institutions.
Of course, over the past several decades, central banks -- in their role as the "bank of banks" -- have made various efforts to improve the safety and efficiency of payment and settlement systems, for example by introducing real-time gross settlement, simultaneous settlement of funds and securities, and simultaneous foreign exchange settlement. Furthermore, with regard to currency issuance, a fundamental role of central banks, some central banks are now exploring the possibility of issuing central bank digital currency. Thus, in the long-run, an era of major transformation may lie ahead even in the core operations of central banking, such as the "issuer of banknotes" and the "bank of banks."
In sum, central banks are facing new challenges both in terms of policies and operations as a result of wide-ranging structural changes in the global economic and financial environment. I hope we will have lively discussions on these challenges and their implications at this conference.
Following my remarks, this year's Mayekawa lecture will be given by Professor Raghuram Rajan of the University of Chicago. I am looking forward to learning from his extensive knowledge of banking theory as well as his experiences as Chief Economist of the International Monetary Fund and Governor of the Reserve Bank of India. For the keynote speech, Professor Athanasios Orphanides of the Massachusetts Institute of Technology, our new Honorary Adviser to IMES, will share his views on policy issues, based on his experience both as a former central bank governor and an academic.
The paper presentations will focus on the four topics: (1) the sustainability of the low interest rate environment under globalization, (2) the impact of the issuance of central bank digital currency on the effectiveness of monetary policy, (3) the impact of productivity changes on optimal trend inflation, and (4) the mechanism behind missing wage inflation. The final and concluding session will be the policy panel discussion, moderated by the IMES Chief Councillor Kazuo Ueda. As panelists, we welcome James Bullard, President and CEO of the Federal Reserve Bank of St. Louis, David Ramsden, Deputy Governor of the Bank of England. I hope that this panel will help deepen our understanding on "Central Banking in a Changing World" from both a theoretical and a practical perspective.
Of course, compared with the wide range of issues to be discussed, our available time at this conference -- one-and-a-half days -- might be too short. Based on this limitation, the items in the program, especially the paper presentation sessions, are necessarily selective. Nevertheless, by combining paper presentations, lectures, and panel discussions, I hope that the conference as a whole will activate discussion from a variety of perspectives and will deepen our understanding of the issues facing central banks.
Thank you for your attention.
Japan Appealed to the WTO Appellate Body Regarding the Republic of Korea’s Measure Imposing Anti-Dumping Duties on Pneumatic Valves from Japan
METI, Monday, May 28, 2018
On May 28 (Geneva time), 2018, Japan requested an appeal to the WTO Appellate Body regarding the panel report on the measure imposing anti-dumping duties by the Republic of Korea (ROK) on valves for pneumatic transmission (pneumatic valves) from Japan, a matter that has been examined by the WTO at the request of Japan.
On March 15, 2016, Japan requested the establishment of a panel under the WTO Agreement regarding the ROK’s measure imposing anti-dumping duties on pneumatic valves from Japan, and on July 4, 2016, a panel under the WTO Agreement was established.
Japan claimed that the ROK’s imposition of anti-dumping duties is inconsistent with the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement) due to defects in the determination of injury and a causal relationship as well as in transparency in its investigation procedure.
On April 12, 2018, the WTO circulated a panel report, which presented a ruling that ROK’s imposing of anti-dumping duties is inconsistent with the Anti-Dumping Agreement because of defects in the determination of injury and a causal relationship as well as in transparency in its investigation procedure. The panel report also requested that the ROK bring its measures into conformity with the Anti-Dumping Agreement. At the same time, the panel report did not accept Japan’s claims on several other issues or make any decision thereof, since these issues were deemed to be outside the terms of reference of the panel.
Therefore, on May 28, 2018, Japan requested an appeal to the WTO Appellate Body regarding these issues for the Appellate Body’s ruling on them.
2. Details of the decision
The report recognized that the ROK’s imposition of anti-dumping duties was inconsistent with the Anti-Dumping Agreement and recommended that the ROK bring its measures into conformity with that Agreement. At the same time, the panel report did not accept Japan’s claims on several other issues or make any decision thereof since these issues were deemed to be outside the terms of reference of the panel. The major points of the panel’s ruling are as follows:
The ROK’s decision to impose anti-dumping duties is inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement due to defects in the determination of injury to the ROK’s domestic industry and a causal relationship between such an injury and the dumped imports from Japan.
The ROK’s decision is also inconsistent with Articles 6.5 and 6.5.1 of the Anti-Dumping Agreement due to defects in the procedure, i.e., in handing of confidential information.
Some of Japan’s claims, including those regarding the interpretation, etc. of Articles 3.1, 3.2 and 3.4 of the Anti-Dumping Agreement were not accepted or they were not decided on since these issues were deemed to be outside the terms of reference of the panel.
3. Future schedule
In principle, the report of the WTO Appellate Body is to be circulated to WTO Members within 60 days (with an absolute maximum of 90 days) from the appeal date, and the Dispute Settlement Body is to adopt the report within 30 days of its circulation, but the period of the examination by the WTO Appellate Body tends to be prolonged. Therefore, it is likely that it will take more than 90 days for the WTO Appellate Body to circulate its report.
Previous news releases regarding this matter
Japan Requests Consultations with the ROK (on March 15, 2016)
Japan Requested the Establishment of a Panel under the WTO Agreement (on June 9, 2016)
A Panel was Established under the WTO Agreement (on July 4, 2016)
The Panel Circulates a Report (on April 12, 2018)
Pneumatic valves are parts (valves) which control the flow of compressed air in extending, retracting and rotating pneumatic cylinders, which are applied to assembly or conveyor equipment in semiconductor or automobile manufacturing plants.
An anti-dumping duty is a customs duty imposed on a certain product by an importing country. In case that, as the result of the investigation by the importing country, it becomes apparent that a product is exported at a price lower than the price it normally charges in the exporter’s home market (it is said to be “dumping”) as well as that the export causes injury on the importing country’s domestic industry, the importing country may take action against the dumping in order to defend their domestic industries. The amount of anti-dumping duty cannot exceed the difference between the export price of the product and the domestic selling price of the like product in the exporting country.
Japan’s exports of the product in question to the ROK
Japan’s exports of pneumatic valves to the ROK amounted to approximately 9.1 billion yen in 2017.
A panel under the WTO Agreement
If consultations between the interested parties fail to settle a dispute, based on the request from the complaining party, the WTO panel examines the matter and makes a ruling regarding consistency with the WTO Agreement. A party that is not satisfied with the panel ruling may appeal to the WTO Appellate Body.
May 28, 2018
Divisions in Charge
Information on the WTO dispute settlement in general:
WTO Compliance and Dispute Settlement, Multilateral Trade System Department, Trade Policy Bureau
Information on the pneumatic valves industry:
Industrial Machinery Division, Manufacturing Industries Bureau
Information on Japan-ROK economic relationship:
Korea Office, Trade Policy Bureau
Japan's Tightened Regulations on Ivory Transactions
METI, Friday, June 1, 2018
The amended Law for the Conservation of Endangered Species of Wild Fauna and Flora came into effect on June 1, 2018. The enforcement of this law and other related initiatives will further tighten Japan's regulations on ivory transactions within its own borders, which are already on par with those of other major countries. The Government of Japan will further contribute to the conservation of elephants while strictly implementing trade restrictions on ivory under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) through the above-mentioned measures.
1. Tightened Regulations on Ivory Transactions within its own Borders
With the enforcement of the newly amended law, business operators handling ivory products are now subject to registration requirements with the government, in order to engage in the business. This represents a change from just having to file a notification previously. Under the amended law, the following obligations are imposed on the registered business operators:
All whole ivory tusks are subject to registration requirements. A registration card must be attached on whole ivory tusks that are put up for sale.
A traceability information form must be prepared for every cut piece and every worked product of ivory that weighs over 1kg and exceeds 20cm. The form must be attached on every cut piece and every worked product of ivory that is put up for sale.
A record must be prepared for every transaction of cut piece and worked products of ivory, indicating its source, buyer, weight, characteristics, and so on, and must be kept for five years.
Relevant information including a registration number and the name of a business operator, and the expiration date of the registration must be indicated for cut piece and worked products of ivory that are put on display for sale as well as on their advertisements.
An operator in breach of these obligations is liable to a maximum fine of up to JPY 100 million (about USD 910,000) and/ or a maximum prison sentence of up to five years, while the registration for business operations of such an operator will be nullified.
As stipulated by the law from before the recent amendment, the ivory items that can be sold legally in Japan are limited to the following:
Whole ivory tusks, cut pieces of ivory and worked ivory products that had pre-existed in Japan ahead of the adoption of CITES trade ban (in 1980* for Asian elephants and 1990 for African elephant). *Japan joined CITES in 1980.
Whole ivory tusks, cut pieces of ivory and worked ivory products which were imported to Japan with pre-convention certificates issued by exporting countries under CITES.
Whole ivory tusks which were imported to Japan in 1999 and 2009, as exceptions approved under CITES.
2. Improved Monitoring and Tightened Control over Ivory Transactions
In response to some reported cases of foreign visitors and other buyers illegally taking out ivory products from Japan, the Government of Japan has been taking the following measures to thoroughly enforce the regulations:
Increasing the number of officials of the Ministry of the Environment, in charge of monitoring and control on transactions of endangered species of wild fauna and flora, including ivory, from 22 to 26.
Requiring business operators that handle ivory products to explain to buyers (including foreign visitors) legal procedures needed to export those products.
Tightening border controls through more effective cooperation with the Chinese customs authority and CITES management authority.
3. Supporting Range States in the Fight against Poaching of Elephants
Illegal wildlife trade is an urgent global issue. The Government of Japan is deeply committed to the cause of protecting elephants from atrocious acts of poaching by international criminal organizations among others, and attaches great importance to supporting range states in the fight against poaching of elephants. As part of this commitment, in 2016 and 2018 respectively, the Government of Japan assisted the governments of Zimbabwe and Uganda, in developing their posts for field rangers conducting anti-poaching operations. The Government of Japan will continue to make utmost efforts in assisting range states in their fight against poaching of elephants.
The enforcement of the amended Law for the Conservation of Endangered Species of Wild Fauna and Flora and other related initiatives will further tighten Japan's regulations on ivory transactions within its own borders, which are already on par with those of other major countries. The Government of Japan will further contribute to the conservation of elephants, in close cooperation with the international partners, while strictly implementing trade restrictions on ivory under CITES through the above-mentioned measures.
Outbreak of Ebola virus disease in the Democratic Republic of the Congo : Dispatch of Assessment Team
Foreign Affairs, Tuesday, May 29, 2018
1. On May 29, the Government of Japan will dispatch the Assessment Team including infectious disease experts and officials of Ministry of Foreign Affairs and Japan International Cooperation Agency (JICA) to the Democratic Republic of the Congo following an outbreak of Ebola virus disease.
2. The Assessment Team will investigate the needs of the affected areas and coordinate the possibility of further assistance based on discussions with the Government of the Democratic Republic of the Congo and International Organizations.
Signing of Japanese ODA Loan Agreement with Cambodia: Contributing to a stable power supply in the metropolitan area through improvements to substations and the transmission and distribution system
Foreign Affairs, Tuesday, May 29, 2018
On May 28, the Japan International Cooperation Agency (JICA) signed a loan agreement with the Government of the Kingdom of Cambodia in Phnom Penh, the capital city, to provide a Japanese ODA loan of up to 9.216 billion yen for the Phnom Penh City Transmission and Distribution System Expansion Project (Phase 2) (II).
The project will increase the number of substations and expand the transmission and distribution network in Phnom Penh to stabilize the power supply in the metropolitan region The loan funds will be allocated to public works required to construct the substations and expand the transmission and distribution system, to equipment procurement, and to consulting services (basic design work, detailed design work, bidding assistance and construction supervision).
Accompanying stable economic growth in recent years, the demand for power has risen rapidly in Cambodia. Although the operation of large-scale power plants has advanced, increasing the amount of power produced, the capacity of the power transmission and distribution facilities in the Phnom Penh metropolitan area is inadequate, such that a stable supply of power cannot be provided. In addition, there is lack of system control, resulting in widespread effects during power outages, which require a long time for restoration.
Implementation of the project will alleviate the capacity inadequacy of substations, which hinder the power supply, enable a stable supply of power over a wide area, and enhance the reliability of the transmission system, particularly in Phnom Penh. These measures are expected to contribute to economic development in the area.
A Japanese ODA loan (signed in March 2015 for 3.816 billion yen) was provided for stage I of this project, and this loan is for stage II.
1. Terms and Amount of Loan
(Table in the linked page)
2. Executing Agency
Electricité du Cambodge
Address: Street 19, Wat Phnom, Daun Penh District Phnom Penh, Cambodia
Phone: +855-23-723-971, fax: +855-23-426-346
3. Planned Implementation Schedule
(1) Completion of project: June 2021 – when the facilities are put into service
(2) Issuing of letters of invitation for consulting services (including detailed design work): Consultants have already been hired
(3) Tender announcement of initial procurement package for international competitive bidding on project construction:
Release date: May 2018