 Good morning, everybody. Good morning and welcome. So my name is Shiro Armstrong. I'm the director of the Australia Japan Research Center here at the ANU. Before I, before we start, I'd like to acknowledge and celebrate the traditional custodians of this beautiful Ngunnawal country and the land we meet on and pay my respects as Ngunnawal people and their elders past and present. So it's a real pleasure for me to welcome everybody and open this update here with my colleagues Ipe Fujihwala and Llewellyn Hughes. We co-convene this update and this Japan update is the 10th year. So this was launched 10 years ago by, oh, thank you. That's right. It's nice to celebrate the milestones and launched by Fujihwala Ipe and Veronica Taylor. So this year we have sessions on the economy, on economic security, a new ish topic that I think we're all thinking about, of course, foreign policy and security and science and technology. So we've brought some top academics, people from industry from Japan, of course, and those close to the policy process. In Kaizuka-san's case, someone right in the middle of the policy action. So as we do each year, it's a pleasure to launch the East Asia Forum quarterly issue related to Japan. This year we focus on ASEAN and Japan. This is, of course, leading up to the special 50th anniversary summit in December, where Japan hosts the ASEAN leaders. And Au Barmier, who's here today, has a piece in here, of course, and her piece was featured in the financial review on Monday. So I hope you saw that, and if you didn't, please check it out in the magazine. We did this focused on the ASEAN relationship because it's important for Japan, it's important for Australia, and we'll hear more about that during the day. Of course, today, President Jokowi in Indonesia is hosting Prime Minister Kishida in the ASEAN Plus 3 summit, and tomorrow that's broadened out to the East Asia Summit grouping. This comes on the heels of Japan, of course, inviting ASEAN to join the G7 summit, which Japan successfully hosted in Hiroshima last May. It's been a big year for Japan in foreign policy and security affairs, and we'll hear much more about that during the day. Some of that discussion will include Japan having passed laws to double defence spending in the next five years, and Japan having put in place economic security measures to help navigate great power strategic competition in the region. Australia and Japan continue to grow closely, closer strategically. This is the closest the two countries have ever been. That's across people to people and travel having resumed, but the economic and energy relationship, of course, and now a big new feature of the relationship, the security relationship. But there were some diplomatic fumbles or grumbles in the energy relationship after Australia's gas policies earlier this year, and that of course reminds us that we can't afford to take each other for granted and for the relationship to run on autopilot, so hopefully we can talk about those issues in the later panel. Japan's economy, of course, is growing strongly right now, 6% growth year on year, prices are rising in Japan, quite remarkable, and it's a weak yen, so if anyone hasn't been to Japan recently, it's a great time to travel there. But before we move on to the update, I wanted to update everybody on some of our events here and what we've been working on, but also importantly about our friends and colleagues here at the ANU. And to start, I want to say that our thoughts are very much with our dear friend and colleague, Ricky Kirsten, who is battling cancer right now. Ricky is an important member of the Japan studies community at the ANU, but in Australia more broadly, having led ANU's Asian studies efforts in the past, and of course she won't be a stranger to this audience having spoken at the update many times. She's returned from a leadership position at Murdoch University a few years ago to the ANU, and again our thoughts are really with Ricky. And as many of you know, sadly Carol Hayes passed away last year in October, and she's sorely missed by our community. We're very pleased in that regard, in recognition of her huge contributions to Japan studies, Japanese studies, the Japanese government will award her a posthumous Order of the Rising Sun Gold raise with Rosette. So we acknowledge again today the big leadership role that Ricky and Carol have played in building our work here at the ANU on Japan and on Asian studies more broadly. Let me highlight some of that work that they've been party in building up, and led the building up of. So alongside of course our courses on Japanese language and literature, still the largest language program at the ANU, we have courses on the Japanese economy, Japanese politics, Japanese foreign and security policy, and a masterclass on Japanese policy issues. And of course Japan plays significantly in many of our courses across the college. We're seeing many more Japanese students on campus now with a twinning program with Ritsunekan University. We've got an internship program with Keio University economic students, and our exchange students in both directions have resumed and very active post-COVID. You probably already know, but pleased to know if you don't, we have more student exchange arrangements with Japan at the ANU than with any other country. And in addition to our individual research from colleagues across the college on Japan, we have an active seminar series. We host a number of visiting scholars from Japan and some of those are in the audience today. And we've just signed an MOU with the Japan Research Institute to have regular visitors to the ANU for joint research projects. And of course we have our annual events in Japan. So I realize the ANU is not the easiest place to navigate, but we do have a newsletter from the HRC and the Japan Institute, so please sign up to those. I want to thank all our speakers for travelling here from Japan and elsewhere. And thank you to the audience who's shown up in great numbers in person and online. So we have a large online audience. And at this event I want to particularly encourage and extend the opportunity to students to ask questions throughout the day. So thank you very much for that. I look forward to all the discussion and let me now introduce Professor Fujiwara Ipe from Keio and ANU to start the first session. Thank you. Okay, thank you very much. Let's start the first session. It is our great pleasure to welcome Mr. Masaki Kaizuka, the current Executive Director of the Bank of Japan, as a keynote speaker of the Japan Update 2023. Mr. Kaizuka has a tremendous career in policy making, having worked for the Ministry of Finance for 35 years. Before becoming the Executive Director of the Bank of Japan, he was the Executive Director representing Japan at the International Monetary Fund. As you may know, the Japanese economy showed some sign of the change. For the first time in three decades, we may be able to have inflation. Okay, so inflation is the positive word for Japan. Yeah, so I started working at the Bank of Japan in 1993. Around that time I learned that Central Bank is an institution to fight against inflation, but during my 18 years' career of the Bank of Japan, I have never seen any inflation. So this time we may be able to have a stable inflation or not, is a very interesting topic. So I'm very much looking forward to listening to the view by Mr. Kaizuka on the current issue. So first we will have a keynote address by Mr. Kaizuka, which is followed by a presentation and a discussion by Professor Rune Makkibi, my colleague at the ANU. She had significant achievement in academic studies, publishing many, many articles in her top academic journals, and is a Fellow of the Academy of Social Sciences in Australia. And also Rune has been making a significant contribution to policy. She's one of the three authors of the recent review of the Reserve Bank of Australia. Then after Rune's presentation, we would like to have questions and comments from the floor, as well as the virtual participants. As she mentioned, we would like to have a library discussion among all of us. That's the format of today. So without further ado, please join me in welcoming Mr. Kaizuka as a keynote speaker of the Japan Update. Thank you, Ipe-san. Just immediately after your substantial introduction, I don't have anything to add, so I can finish my presentation right now. But as I allocate 30 minutes to speak, I should speak 30 minutes. So anyway, Shiro-san and Ipe-san, thank you very much for your very kind invitation to this fabulous place in the campus of ANU. And I'm very impressed to look at, it's already gone, the banner. It says, Australian Japan Research Center, ANU New Japan Institute. So Japan, Japan. When I have a chance to go abroad, go to the United States for the overseas study back in 1986, there are many equivalent institutions or centers in the United States, US, Japan, Japan, blah, blah, blah. And so many institutes which devoted to the study on Japanese economy, Japanese policy, Japanese culture. But after the three decades, after the last three decades, quite an unfortunate thing is to see the change of the name of those institutions from Japan, blah, blah, blah, to East Asian, blah, blah, blah, or China, blah, blah, blah. So I'm still very, very much impressed with the name of Japan still here on the banner. Thank you so much. Let me start with why I'm here. I got the direct invitation from Ipe Fujiwara-san when we traveled together to Korea. And we owed him quite a much. I, in charge of an institute of monetary and economic study in the Bank of Japan, we are occasionally organized an international conference. And when we have some difficulty to find a proper speaker, proper discussant, a presenter who is fluent in English and who has a very substantive thing to convey, we always ask Fujiwara-san to join us. So when I offer this invitation, I don't have an alternative to accept this. So this is the reason why I'm here. So if you are not happy with my presentation, it's an attribute to Fujiwara-san. Okay, then I'm happy to be here. Actually, this is not my first time in Canberra. My last time in Canberra was back in 2006 or 2007 when I was working for the Ministry of Finance and engaging in the bilateral trade negotiation with Australia. So I repeatedly visited the Ministry of Foreign Affairs building to have a very, very heated negotiation and discussion. And yesterday I came here and all the ways from the airport to this place, I found quite a shiny new building here. This is very surprising. My first impression when I first visited here, we can see the open sky, no high buildings. And that impressed me. But now I can see some change here in Canberra. But at the coffee shop, Cafeteria, I found a very, very familiar name of a flat white. Actually, I still don't know why it is called a flat white. But anyway, that flat white, this is the long-lasting culture here. It's never changed here. So I'm very, very much impressed. Then, okay, let me turn to the substance of my presentation. My slide, please. Okay. Ipe-san introduced me. I'm going to talk on the Japanese economy and prices. And I think I have 30 minutes to talk. And I subtitled my presentation. It's this time different. So I'm going to talk about whether it is this time different or it is not different. As I remain sane. Let me... This is the outline of my presentation. So first, start with a general trend of a Japanese economy, which is a little bit boring part. And then the highlight of my presentation, a price and the wage dynamism, which is currently showing up. I may skip the international comparison of the prices. And then lastly, I'm going to touch very, very briefly on our new initiative of a broad perspective review. Okay. Let me start the Japanese economy. Let me start with our current Japanese economy and our outlook, the BOJ outlook. The left-hand side shows our latest outlook of the Japanese economy in terms of real GDP growth. This came out at the end of July. So situation is very changeable. We may have a totally different number when we next time formulate the outlook in October. But anyway, this is the latest figure. Latest figure indicator. This fiscal year. Our fiscal year started in April and March next year. So FY 2023 means from April to 2023 to March 2021, to March 2024. So FY 2023, we estimate 1.3 percent real GDP growth. Then 1.2 in FY 2024. Then 1.0 in FY 2025. So 1.3 outlook is backed by some positive development of the economy. We have materialization of pent-up demand, which was accumulated in the pandemic period of time. And we have a very accommodative financial situation. And we have a series of the government policy packages. So all in all, we can have a very positive number, 1.3 percent. 1.3 percent, the growth is a very substantial one from our perspective. Because we are estimating our potential growth is around between 0 and 0.5 percent area. So 1.3 percent is a relatively high number here. I don't think 1.3 increase is not a high number here in Australia. But anyway, for us, it is relatively high figure. And another promising sign is a very current actual GDP growth. On a quarterly basis, we issued a quarterly estimate by the government. And the very latest figure, which came out just a few weeks ago, indicated 6.0 percent annualized rate of... Okay. Here, 6.0 percent. Mainly led by the net export, but still the number is very high. So maybe in October when we recalculate the outlook for the FY23, the number is going to be slightly device upward. It may be. I cannot say anything for sure. So the economy at this moment of time is rather favorable situation. But there is a certain risks, the mainly two risks. One is as Professor Fujiwara mentioned, we finally have a sign of inflation in my country. This is around 3.5 percent. So comparatively speaking, it's not a very huge inflation. But still, for us, it's inflation. And it may have some negative impact of consumption ahead of time. And another risk factor is from overseas economies. US and Europe, looking at the policy rates on the right-hand side, they are facing the inflation, very high in the figure, 9 percent, 10 percent increase of consumer price. They are responding, they are tightening their monetary policies. For the US, they raised the 500 basis point already, and there are more to come. I don't know once or twice, but anyway, there are more to come. And the European side, they have a 400 basis point increase, and there are also some more to come. So those policies, the tightening and monetary policy may have some negative impact on the economy. And people now are discussing, US is going to be successfully to have a soft landing of the economy. But we have to be very, very cautiously to see what is going to happen to the US European economy. And to the contrary, looking at the China, here, they are taking accommodative monetary policy, they are reducing their policy rate, because looking at the inflation rate, or... Oh, this is wrong. I'm sorry. This one is a gross rate. This one is an inflation rate. It's a misspelled. So looking at this, China has a negative figure for the price increase. So people are now discussing, China is going to or is already in a deflation. And somebody says it's a kind of a Japanization of the China economy. But it's too early to judge. But anyway, there is some kind of adjustment in the real estate sector. And, for example, use unemployment rate is scarcely high in 20% or something. So we have to be careful to see what's going to happen to China economy ahead of time. So let me turn to the Japanese economy. Looking at the corporate sector, the corporate profit is increasing trend, on the increasing trend. Because, as I mentioned, the economy is recovering. And also, there is some change in the selling price. They are successfully raising the selling prices. And for some of us exporting the company, devaluation of the currency is a good one for their profit. So profit is on the rising trend. And reflecting that, business-fixed investment, that is KPEX, plan to be a relatively high number. So last fiscal year, that ended up with 7.6%, 7.6% increase of business investment last fiscal year. And then this fiscal year, firms plan to have a relatively high investment plan, which amounting to 12.3%, which is much higher than the previous years. So we have some positive sign on the investment side, which reflect some kind of new investment, which was contained in the period of the pandemic. And then there is some deferred the emergence of investment, one thing. And secondly, we have facing serious labor shortage. So the company is engaging the labor-saving investment. And also there is a kind of a long-standing agenda, like decarbonization or digital transformation. So the company would make a huge investment in those gross area. So all in all, we have the positive sign on the investment too. Let me turn to the individual side, household consumption. Looking at the left-hand side, our consumption is still below the pre-COVID the time here. This one is less than here. So, but the promising sign is is gone. It is now increasing. And one positive sign, there is two positive factors behind the consumption rise. One is we have accumulated saving, we call it excessive saving. What it means? In the pandemic, the period of time, people restrained their consumption behavior because they cannot go outside, because they cannot go to the restaurant. So consumption was contained to much extent. And at the same time, there is a huge transfer from the government to the individuals. And because of a huge transfer and contained consumption behavior, we have kind of excessive saving in the hand of individuals. Now, amounting to the 44 trillion yen, which is around 8% of GDP. So it is a very similar case in the other country. For example, U.S. also has excessive saving. But what is different is after the COVID, the U.S. excessive savings now withdrawn and turning to the consumption. So it is going to decline the accelerator. But in the Japanese side, we are still have 44 trillion yen to be used for the future consumption. And another, that indicate here, propensity to consume is increasing. So that means that we are finally start to consume. And then another good sign is the employee income. That's the black line indicator, rising trend of the employee income. I'm going to talk about the wage later. But anyway, the wage is increasing. So income is increasing. Looking at this diagram, white part is the contribution of total cash earnings. The blue part is a contribution of a number of employees. So in the past, number of employees increased is a huge contribution to the rising income. But now, the driver is turned to the cash earnings. So there is a huge increase in the wage, which is very, very promising. But the dotted line indicates I have some problems using this. So anyway, the dotted line indicates real income. We have some inflation. So even though the nominal income is increasing, the real income is declining, but now hit the bottom and now start to increase. So in a few months or years time, we may have a positive real income. We hope to have. So those income increase have some of the positive influence to the consumption of the behavior of the household. But here is again the risk factor. That's the inflation. If inflation is certain, over a certain degree, it may have some negative impact on consumption. So we have to look very, very carefully what is going to happen to the price and the consumption in the coming weeks and months. So let me then turn to the highlight of my presentation, price and wage dynamisms. Finally, I'm happy to speak on this after the 30 years of time. So here, I heard that inflation is a very negative world. But we, in Japan, the inflation is a very, very positive world. It's kind of a long, waiting lovers to come finally. Okay, looking at the figure, developing the CPI, now we have the historically high level of the consumer price index, which is mounting to 4.2%, historically high. This number we didn't haven't seen for entire 30 years of time. So of course, this is the brought about by the cost increase, cost of the materials, importing prices. But anyway, we have a very high figure on the consumer price index. So the important thing is what is going to happen from here, whether this rising trend of price is a sustainable one, or it's just a temporary one, and it's just a one-shot happy story. But we are now very critical, at the critical juncture to judge whether this is a real fundamental change of the price and the setting, or a change of the normal of economy. So our outlook, indicated in the right-hand side, have a 2.5% increase for FI-23, 1.9% for the FI-24, 1.6% for the FI-25. So as you may know, we have a so-called 2% inflation target. So unfortunately, still in years of time, we are still below the 2% of the target. So that indicates we, the Bank of Japan, is not confident enough. The current rise of inflation is going to be very stable or sustainable. We have to see that the father, the good kind of dynamism, price and the wage thing. So we are still a little bit, cannot be confident enough. So that is a particular reason why we are sticking to the ultra-accommodative monetary policies. People are saying, now we have a 4% of the increase of CPI. Why don't you change your monetary policy stance? But as we are not confident in the course of the time for the sustainability of the price level, we think we still have some distance from the real policy change. But anyway, an important thing is we have a high figure, whether it is a temporary structure, we have a high figure, and we have some good sign of the price and the wage dynamisms, which I'm going to talk from now on. So in having the focus, we are looking at the price movement. Now, as I mentioned to you, the 4.2% of the increase of CPIs are mainly caused by the increase of the cost of raw materials, which is reflected at the import price. And looking at the right-hand diagram, that indicates a kind of a pass-through of the increase of the import price to down to the production process. So stage one is an upstream of the production process. Stage four is a very, very downstream of the production process. So at the end of the production process, we still have a flattened curve of price movement. So how the pass-through from the import price is going to be materialized in the final stage of the production and ultimately to the consumer price, which is the key question. And looking at the import price, it's a hit-the-peak already and now in the negative territory. So it may have some negative impact of a future price setting, but still there is a certain pass-through of the stage of the pass-through of the import prices to the downstream production stage. And to estimate the inflation, another big factor is the output gap. We are still in the negative territory of output gap. That means the supply is bigger than the demand. So that means if the output gap has in the negative territory, that may have a downward pressure on the price formulation. So now looking at the situation here, it's negative, but it's very, very close to zero. So we are expecting those figures is going to turn to positive in the coming months. And so if the output gap is going to turn to positive, then we have some pressure from that side to the price setting. And looking at the inflation expectation, which is also another key factor for the inflation outlook. Quite unfortunate, the inflation expectation, broadly speaking, is not anchored yet to our 2% price target. But the positive thing is it starts to increase. So we have to look carefully at those inflation expectations going to the anchored in the 2% target. And our formation of expectations in Japan is quite adaptive. That means people expect based on the actual number, based on the history. So currently now inflation is coming in town. So we have a very high figure for the inflation around the 3% point. That may have some implication for the further formation of expectation. It may come closer to 2%. And if it's going to stay around the 2% area, then we have to think about the change of our policy stance, maybe. Let me turn to... We have a very huge hike of the consumer price index. And there is some kind of the non-linear change in the behavior in the economy. This indicates that the firm's price setting stands. The red line indicates the ordinary price setting. If the higher that means that they put the higher price tag on their product. And if it is lower, you put the lower price tag. And looking at the blue line, which is very stagnant over the modern 20 years time, this is a firm very, very cautious about the changing out of prices. So they never, ever changed their price, regardless of their environment. Why so? People think if you alone raise your own price, you may have some negative performance of your sales. Because your competitor is staying remaining at the same price level. So once you raise your price, you will lose the market. So that is kind of a concern they have. So they keep unchanged in terms of the price. So they are looking at each other, among others. So that kind of the price setting practices end up with the very, very stagnant price level of Japan. And now it's changing. Because of a huge cost push from the import, they don't have any alternative to raise the price. And if you look at your neighbors, neighbors are in the same situation. They have to raise the price. So those kind of the neighboring effect. Now finally, you have a certain confidence to raise your price. So that is the kind of the non-linear change of the price setting behavior in Japan. And another graph indicates that this is a price of daily necessities. And the light blue line indicates the goods in a very low market concentration. That means the competition is very high in this market. So if a competition fears, then you tend to stay unchanged at price. But now finally, year 23, now it starts increasing. This is the phenomena we haven't seen for decades of time. So we can see the change of the pricing behavior. Then turn to the wage. This is the outcome of our spring wage negotiation. We have annual negotiation of the wage in spring time. And this year we have a historically high outcome of wage negotiation, which come up to the 2.1% of base payment and 3.6% of a total wage. That's what's here. So the difference of 1.5% is it's a very unique feature in Japanese wage setting. We are very famous for the lifetime employment, which is changing. But still we have a lifetime employment. And the payment is based on the seniority. If you stay longer in your farm, your salary is automatically increased year by year. So those kind of automatic increases is explained, the remaining portion of 1.5%, which is very unique. But anyway, important thing is finally we have the high figure for the base payment increase during this 30 years time. And another important thing is looking at the right-hand side. We have a widespread wage increase in regardless of the size of the company. And they are now increasing their wage. And at the same time, even for the part-time employees, they have also high figure for their own wage increase. So wage increase is now in place at least this year. So real question is whether it is sustainable or not. And looking back at history a little bit, here the development of the price and the wage, and in the 90s and the 2000s, this is very stagnant. The wage and the price is in a declining trend because this is a percentage of an increase. It's around zero or even a negative number. And more important on the right-hand side, sensitivity between price and wage is very, very limited. Between year 86, 95, we have a certain sensitivity between the wage and prices. But year 2000 to 2019, we have a very, very limited sensitivity between them. Now, it is changing. This is the rather technical thing, but the left-hand side indicator, the green line indicator, estimated base pay increase. We have a certain way of estimation about wage increase. But actual increase of green line and red line indicate the estimated base pay increase. So huge discrepancy between the estimation and the actual number. There is some nonlinear change of sensitivity from CPI to wage. So CPI, one CPI increase have more substantial impact to the wage increase. This is what is now happening. And what is in the background of the wage increase? The important thing is the labor market condition in Japan. We are facing, too, the labor shortage. It is a more structural one. The pandemic is one other factor to contribute to the labor shortage. But the traditional speaking, we have relatively high figure of labor shortage prior to the pandemics. And it is, again, the increasing trend. Then that labor shortage is going to be more likely to, more and more severe. It's going to be surpass the situation in the bubble economy era. So labor shortage, yes. And then we have some tendencies here. In the past, labor demand was matched by the labor supply by the seniors and women in Japan, which is relatively the less participation in the market. Now we have a very stagnant number here for the senior labor participation percentage. And the bubble, sorry, baby boomer, which contributed to the labor supply to large extent is going to be older than 75. Now then it's going to be the grinding trend of labor participation of those ages. For the women, we have a very, very famous so-called M-shaped curve here. That means if you have a plot the labor participation rate by ages, in Japanese case, age 35 to 44, the labor participation rate is declined substantially because they are quite busy for the domestic work, busy for the child raising, those kind of things. But now the situation is now changing. Looking at the number, the 35 to 44, that is increasing a little by little and the M-shaped curve is going to be comparing the yellow line, red line, it's going to be flattened to some extent. And more importantly, looking at the figure for the 25 to 34, we have a higher number for Japan... Oh? Did I say something wrong? Okay. I'm not a sexually biased at all. So anyway, looking at the figure for 25 to 34, we have a higher number than the US or Germany and coming closer to the Sweden case. So that indicates the room for the increase of labor participation in the female woman is some extent, some are less limited. So that tells you the labor shortage, the situation in Japan is going to be more and more severe. So if the labor shortage is severe that may have some upward pressure for the wage increase. Because the people have to recruit the good people, retain the good people. They have to offer them a higher wage. Otherwise they are going to move. But to move, then we have another important aspect of the labor market. That is the labor market mobility in Japan. Now the Kishida government is promoting some policy to facilitate the laborers to move around the working place. So they are capable person can seek for the higher wage. Then they can move from one company to another. We are historically speaking, we have a lifetime employment, which is a good guarantee for the people. But now younger generation tend to do more challenging in their behavior. They are hopping around, seeking for the opportunity for the higher wages. So that may have another upward pressure for the wage setting. So all in all, we are now seeing some kind of a break of a norm, so-called a zero norm. Zero price increase, zero wage increase. That is changing. So the norm is changing. But the real question is whether this is sustainable or not, and whether this time is different. And looking at another important indicator, we have to see what happened to the service prices. Looking at this is a kind of a histogram of the CPI items. Looking at Japan's case, we usually have a very high concentration of a zero percent increase in price. That is more or less the reflected service price situation. Looking at the United States Euro area, when we have inflation right this timing, their distribution is moving right-hand side. But in the case of Japan, we still have the highest peak standing at zero percent. So that means we still have the sticky stagnant price in the services. And the last one is looking at the composition of the price indexes. Our case is the services contribution is quite limited. It compares with the United States case. United States, the service prices increase is the largest contributor to the inflation. So the question is now wage increase, those increase in wage can be reflected in the service price setting or not. If we can see some move in the service prices, then we can be more sure about the price and the wage dynamism. So coming months is a very, very critical month. We have to see what is going to happen. So I have one slide to discuss our broad perspective review, but I leave it for our discussion. Maybe Une has many things to say about her own review. So I stop here. Thank you. Okay, so thank you very much, Kaizuka-san for very insightful presentation about the details and the positive factors and the negative factor for the inflation. Inflation is definitely one of the important factors for the future of the Japanese economy. Shiro mentioned the exchange rate is really key, and exchange rate depends crucially on the inflation and its reaction to the central banks. Okay, so then we would like to have a presentation by Rune. Okay, surprise yours. Okay, thank you, Shiro Ipe in Lualand for inviting me to speak here today, and thank you for Mr. Kaizuka for your keynote presentation. It was extremely interesting. I don't work directly on Japan at the moment, but I did three chapters of my PhD on the effects of the Japanese economy on the Australian economy, so it's nice to revisit some of the issues that are facing Japan, and this week on Friday I'm going to Tokyo, so I'm happy the exchange rate is low, so let's keep it that way, and we welcome any restaurant recommendations that you might have along the way. So it was good to see someone that's excited about inflation in the world. It's always a positive somewhere, I guess. So Japan is growing strongly, 6% growth, but it seems like a lot of that growth is coming from things like net exports, and the risks seem to be on the foreign side as well, things like the asset bubble in China, and a lot of foreign factors driving growth. But it's good to see that there does seem to be some changes in the relationship between variables in Japan in terms of changing in the price-setting behaviour of firms and things. So maybe we're moving into a new era, so let me just... I want to just go over some of the slides, so as you know, I was one of the panellists on the review of the Reserve Bank of Australia, and it has been a long while since I talked about Japan, so I just wanted to explore a little more about what you're planning to do in the review, your broad-based review of Japan, and I stole this from Mr. Koizuki's slides, and luckily he didn't have time to go through it anyway, so this is a figure. I was wondering, but I thought it would be okay this time. So this is a graph of inflation, and he has indicated the different periods of unconventional types of monetary policies that the Bank of Japan has adopted from starting just after the financial crisis in 1997-98 when interest rates were really at the zero lower bounds in Japan, now with the first country to start to experiment with these policies that were unconventional. So the Japanese case is a really interesting experiment for the rest of the world, maybe not an experiment for Japan, but it's given us a really fertile ground for policy research for other countries so we're looking at what types of policies they might be able to use if they are in the case of being at the zero lower bound as well. So I just wanted to say I think it's a really great idea to conduct a review. It's a good thing to reflect and to think about what types of monetary policy tools the Bank might want to use in future downturns, now that they've got a whole suite of options that they've experimented with, and the rest of us can learn from that Japanese case as well. So my questions and comments for Mr. Kazuka come from the lessons of the review of the Reserve Bank that I've recently done and my reflections on that process. So I'll just go through my slides and then there's a lot in here so we can see where you'd like to take the discussion afterwards in that panel context. But during the course of our review we commissioned quite a few of five academics to write on various aspects of monetary policy and we had Professor Ofenides write something for us on the unconventional policies that Australia adopted during the COVID period. And I've just taken some of his figures just to give you the international context of where policy interest rates have been in a range of countries over the same period of time that we've seen Japan have their unconventional policies. So in the first figure we have the policy rates for the US, Europe, the Bank of Japan and the Swiss National Bank and we have Canada Reserve Bank of New Zealand and the Reserve Bank of Australia in the second panel. So if we're looking at, you can see the Japanese policy rate has been at the zero lower bound for a long period of time, much longer than any other country. So you can see that big difference in the types of monetary challenges that different countries are facing. Yeah, you'll see for Australia we only started to hit that zero lower bound during the pandemic period in 2020. So just to give you a quick overview of the Reserve Bank of Australia review and then what the Bank of Japan is proposing so we can give some comparisons. So last year in July 2020 the Treasurer announced a review into the RBA. In August we started working. We had a panel of three people, Carolyn Wilkins from Bank of Canada, Bank of England, Princeton and Gordon DeBauer, the secretary for public sector reform at that time. And we had all of this done, the whole report by March 31st we gave our report to the Treasurer. So he set us an objective of identifying how to make the RBA the world's best and most effective central bank for the future. So that was our mandate and we had not very much time to do it. So this is the first independent and comprehensive review of the RBA. They hadn't done an internal review themselves. There had been reviews of different parts of the bank, like their research models and things like that, but not of the whole bank. So in the end we made 51 recommendations and many of those recommendations came from our analysis of those periods including the unconventional policy periods that we had. So I was trying to work out what the Bank of Japan's broad perspective review is about. There's not much available at the moment in terms of information and I don't speak Japanese. Maybe that's why, but in terms of English language sources the bank announced its review in April 2023 and that review was initiated by the Bank of itself and that announcement came through their monetary policy meeting or announcements after they met. So the review period is from the late 1990s. I guess just around the time Ipe started the bank when they were dealing with the challenges of deflation and the challenges in achieving price stability. So the review is going to go over a period of one to one and a half years and the main objective of the review that they want to look at the positive and maybe some of the side effects which I interpreted as the negative effects of some of the easing measures and how they should be understood in the context of what was happening in the Japanese economy including what was happening in the financial system, what was happening with the bursting of asset bubbles in the economy, what was happening with deregulation and globalization during that period as well as the important demographic changes that we know Japan has been facing. So the idea is that the bank wants to deepen the understanding and insights for future policy conduct which is what the RBA review was about as well. So I have some questions in blue for Mr. Kazuka which maybe some of them we can come back to later if you would like to. I was just wondering if you had a further elaboration on the terms of reference for the Bank of Japan's review. So our terms of reference were to look at the actual monetary policy framework that we have in Australia including objectives and interactions with other major macroeconomic policies such as fiscal policy and macro-predential policies. So we started by looking at the performance of the bank and then the governance and the culture. So mainly the work we did on the performance informed most of the other recommendations that we made. So in this really short period of time we talked to 137 people mainly on team calls because we had an international panel so there was a lot of early mornings. We had lots of roundtables. We surveyed current and former bank employees. We had a couple of public, well one public event and one internal bank event. We had roundtables with academics. We consulted with a lot of political parties as well as cross benches, the Liberal Party, the Greens and I said something wrong as well. And we had lots of international experts and we talked to everybody. So I think that was a very good thing for us to do because I think that one thing that people can't say about the review is that we didn't consult widely and even people who disagree with some of our recommendations have said we don't agree but thank you for consulting us and we do feel that we have been heard. So I think that's a really important part of what we did. Our principles for coming up with our recommendations were how do we best position the RBA for an uncertain future and we're doing this review in the context of after the pandemic we've got climate change, we've got the supply shocks, we've got the war in Ukraine so the future is to us seemed like it was going to potentially be very different to what we've seen in the past so we always had that in our mind when we were coming up with our recommendations. So we wanted to ask ourselves what can we learn from the past to keep the RBA and the monetary policy framework strong. And our guiding principles were that we wanted to build on the strengths so we all had a lot of respect for what the Reserve Bank had done and the framework that they had was very fit. The recommendations that we were making were trying to build on what we already had. We didn't want to throw everything away. We wanted to ensure that the welfare of Australians was kept in mind. We wanted to build on the lessons that we've learned and we wanted our recommendations to be robust, clear achievable, have public confidence, be flexible when needed particularly when some objectives can conflict when we're dealing with complicated things like inflation and how that interacts with things like employment and growth. So I was just wondering what are the principles underlying what your review are going to be. So I'll just give a brief review of what we found and some of our recommendations were. We found that the framework has served Australia well. The flexible inflation targeting framework has worked well in a period where we've had a lot of economic crises coming globally and people understand what the inflation target is. They understand what the two to three percent is. So during our consultations we had several periods where people wanted answers to some of the questions they had about what was happening at the time. And those three periods were, we had a low inflation period from 2016 to 2019. We had the pandemic period where we adopted four of those additional types of monetary policy tools that Japan had been using themselves over their much longer history and then we had the high inflation period afterwards when inflation bounced back higher than people anticipated. So the first period was that low inflation period. You can see a chart here of consumer price inflation and some unemployment on the right. So the period of concern is from 2016 to 2019 where you can see that inflation is often below what the target was. People that we spoke to gave us a lot of different reasons of why we were below that target but there were some concerns as well because the unemployment rate was higher than the bank thought that it could sustain given the circumstances at the time. So there's a question of why was unemployment higher than it needed to be when inflation was lower than it needed to be. And there was a lot of confusion amongst RBA commentators and people thinking through this period they all gave us different reasons for why this was the case so we had things like the bank was concerned with financial stability. They wanted to make sure they had some policy room in reserve in case they needed to reduce interest rates dramatically in the future. So some of these issues that were coming out of that was about communication and having different strategies and already worked out four cases where the board could look at different scenarios through time. So during the pandemic we had four different tools adopted so Australia adopted a yield curve target for those of you who don't know the only two countries that had that type of policy is Japan and Australia. We implemented forward guidance. We had a term funding facility as well as a bond purchase program. So the initial implementation of those tools was a really important part of the economic response during the pandemic and the RBA did really well during that period of time to keep the economy going. But each of those tools had difficulties especially at the exit of some of those tools and we learnt quite a few lessons from that such as making sure if all of a sudden we're in a really complicated period and the board is looking at using different types of instruments and tools that they haven't used before and that interacted with financial markets in different ways so the shocks that were hitting the economy were different than they were before. So I guess some insights into what types of expertise we need on the board, what type of board we need, how we can enable the board to get the information that they need in a way that they can use in a timely manner so to give them enough time to be able to fully understand the policies and risks and benefits and so on. We also have recommended that we give more emphasis to monetary policy strategy in terms of having exit strategies and understanding what will happen under different types of scenarios so there wasn't too much of that happening before. And then we had the high inflation period like everyone else in 2022-23 where inflation bounced up much quicker than people thought and everyone else except for Japan, it seems we're a little unhappy about that. But some of the lessons that we gained from that we have to make sure that the system's in place to encourage debate and challenge at the board to give them different scenarios so why didn't we consider a scenario that inflation did jump up very quickly? So we're just trying to put in place processes so that monetary policy can adjust as quickly and as agile as possible. Okay, so I guess our main lessons from all of those episodes were episodes combined where we need clearly specified monetary policy objectives. We need to ensure constructive challenge and debate. We need to make sure that we have really good forecasting toolkits that maybe accommodate different types of shocks and scenarios than we're used to seeing before. So now all of a sudden we have supply side shocks so our models fit for purpose for that for example and how do we model fiscal policy now that we're using more of the unconventional tools, more relationship between monetary and fiscal policy as well. We learnt a lot about communication strategies and how important they are in communicating with the public and bringing the public along with them in terms of understanding what's happening in the economy and what the implications of decisions might be. So I was just wondering if you have any early thoughts on the lessons that you might come out from your view from your periods of unconventional policy, just some preliminary thoughts on that. I guess you've had this period of unconventional policy for so long. It would be interesting to hear what your preliminary thoughts are. So I'm just going to go quickly through some of the recommendations and I'll highlight it in blue. I guess some of the future risks or some of the things that came to be important to us for Australia during the review, which I think are probably relevant for Japan as well because the lessons that we learnt from looking at these policies actually had a broader implications for a lot of these other types of areas. So I guess I'm a little bit conscious of time so I guess I will just focus on some of those blue ones. So one of the things that came out of our review was understanding how fiscal and monetary policy work and work together. So during unconventional times, the line can be blurred between what's a monetary policy decision and what's a fiscal policy, a type of decision. So could some of these balance sheet policies that the bank have used, could they be better used or targeted by a fiscal policy because monetary and fiscal policy have different distributional effects? So how should we think about that? So we've recommended that in the statement of the conduct of monetary policy between the Treasury and the Reserve Bank Board that they settle some of those issues in advance and we've also asked them to do some joint scenario analysis so that when we're in situations where monetary and fiscal policy really need to work together, how is that best achieved across the whole economy? We've suggested regular reviews of the framework so this was the first review and it was a big deal because it was a first review. So the different types of shocks that are hitting the economy may mean that the current framework that we have is not quite as appropriate as it has been in the past and the Deputy Governor Michelle Bullock of the RBA talked just last week on climate change and monetary policy at ANU and suggested that maybe this is something that they might need to look at in the future as our understanding of the types of new shocks that we are having kind of evolves. We've also legislated the financial stability role so during the low inflation period there was some questions about why the RBA didn't change policy because they were worried about financial stability of the banking system and the financial system. So that is not actually in the RBA's mandate. That is an APRA responsibility but our conclusion was that the RBA and APRA need to really work together with the Council of Financial Regulators but we also think that that should be in the legislation that the RBA has a responsibility for financial stability too. Climate risk is another thing that has come up a lot through our discussions. We made the recommendation that the bank don't directly address climate risk so there were some suggestions that the Reserve Bank could direct banks to lend to climate green types of industries and things like that. We didn't take that into any of our recommendations but we do think that the Reserve Bank has an important role in facilitating that transition and making sure the financial system is working as it should given that in many ways central banks are the first responders to things like climate shocks. We've made recommendations based on what we learnt from those episodes to support deeper consideration of monetary policy decisions and strategy as well as to strengthen transparency and accountability. We've also recommended that in several instances that there needs to be a stronger role of research in formulating policy particularly when we are in these different types of eras. I'm going to finish up now so I guess my questions also are how forward looking is a review so you're looking backwards but what are you going to do with the information that you come out of that especially in terms of things like in the new paradigm that we might be with supply shocks and things like that. You also mentioned in the motivation there were problems in the financial system and I was kind of wondering about that and also wondering about the long time frame for the review so you have a long time to do this but at the same time you're dealing with your yield control issues and I was just wondering does this review mean that you might change your types of strategies given that review and there was no consideration of culture and governance and things in it so obviously it's a very different review but these are some of my reflections but in the paper that we had commissioned by Professor Orfanides he had looked at our policies but he also looked a lot at the policies of Japan and one of the comments that he had in his paper which you should read it's a great paper was a reflection from your current Governor Ueda that he wrote in 2000 when he was obviously not Governor then but he wrote in a journal of money credit and banking which is a highly esteemed economics journal that do not put yourself in the position of zero interest rates I tell you it will be more painful than you can possibly imagine so it's interesting now that 13 years later or 23 years later he's finally getting to do this review to look at some of those issues so I'm sorry I've gone a little bit on a little bit but thank you for listening