 The negative equity is a huge problem for central banks. How can it be a problem for central banks? Does it affect their daily operations? What difference does it make in carrying negative equity indefinitely? I will take a few. Yes. I have two questions. First of all, I think your acceptability rate is up to 0.2%. Is 2% the latest information target you have? And because you're still far from the 2% targets, can the negative equity plan continue to say that they will continue doing what they're doing until they reach 2%? I have a lot of questions. I have a lot of questions. First of all, just in terms of equity in the market, around 50 billion, what is the impact on equity in the applied market? Does the market care about that? Does the market look at that? Secondly, what do you think is going to happen to the underlying assets? And also online distribution, and what lessons do you think there are for Europe? Yes. Even though central banks fall into the negative equity, they can't open it, no problem. So this is really not a technical issue, it's political. How the public and media in a global world will look at this issue? First of all, in a contemporary world, no major central bank ever fall into the negative equity. So there are some emerging economic central banks which have a problem, but no major central bank in the world faces it. So in terms of operation-wide, they can continue. But probably at some point, if they have a negative equity for many years, I think at some point, governments have to intervene to central bank. Then there will be a problem. So the issue is, since all the central banks are independent, also we have a different accounting system, different disclosure system, different, you know, completely separate public enterprises. Then to begin with, that monetary policy hold me, but like me, when I was working there, I think we always, whenever we decide monetary easing, we always have to pay attention to the impact on the balance sheet in such a way that not to deteriorate the soundness of balance sheet. That is a basic idea. So each central bank, all central bank and politicians, they are looking at soundness to make sure that the balance sheet will not deteriorate because all central banks want to avoid the government intervention. So this is the whole idea. But the issue is, I think, related to the second question, then what is more important? Achieving 2% price stability or central bank balance sheet risk and side effect. I think ECB is very clear because you set price stability as the most important mandate. So even though there will be growing financial instability issue, the central bank cannot stop it just because of that. I think ECB policies are very clear. But otherwise, like the United States or Bank of England or Japan is not clear. So here is the issue. So to answer to the first question, yes, operational wise they can do it, but it's more political. Maybe they think that this is a deterioration of fiscal balance. It's like a complete monetization if they think it, but are they going to sell off the Japanese government bond? We don't know. Also, I don't know what public will think because usually deficit in the banking sector or negative equity in the banking sector is a bad thing. So we don't know what will happen. So to go back to the central bank duty, I think we are supposed to do the monetary easing. While maintaining soundness, this was an essential message. But if we continue unconventional monetary policy for too long, then this issue which we used to take it for granted we can no longer achieve two things. Then which is more important? This is, I think, we have to answer. It's not clear. And about 2% target, I know there is a household in Japan that has no support. It's counterintuitive, right? Who wants higher inflation? The corporate sector also finds it very difficult to raise their sales prices. So they are hoping to have a lower inflation target. But why we need to introduce 2%? I think it's very important for Japan to have reasonable nominal GDP growth because over these 15 years the GDP deflator was negative. And nominal GDP looks fine, but nominal GDP growth 0%. And how can you pay huge aging cost? Huge debt. I think we need certain reasonable nominal GDP growth so that the economy is more active and generates some energies. I think we need lowering to 1% is easy, but we shouldn't do it. And also in Japan labor shortage is getting serious. Now we have serious labor shortage. At this stage wages are not growing because a lot of this labor shortage is offset by housewife and elderlies who take part-time job and their wages are much lower. 60% of regular workers wages. That's why on average wage is not growing. But eventually we will face a very serious labor shortage I think in four years. So the wage will really start to pick up. Then it's possible that we achieve 2% from this wage dynamics. So at this moment I think BOJ have to accept it takes longer. I don't think BOJ should try to achieve 2% through Yen's depreciation because if the Yen is already already collected the overvalued I don't think central banks should depend on exchange rate. I mean small country it's understandable but big country like Japan is no longer depending on the export. I think we really have to admit it takes time and thinking about that time span then BOJ should think what kind of monetary policy they can do. My suggestion is that because it takes so many years to achieve 2% and the current level of 80 trillion is not sustainable. I think sometime this year or next year is going to be very difficult. If that is so here's two choices. One is that doing current level of massive monetary easing but the duration of doing that will be less. Or reduce degree of monetary accommodation a little bit now say from 80 to 60 gradually to 50 but instead they can do longer like easy decision in December. To me I think it's better to have a monetary accommodation a bit longer because it takes time for BOJ to achieve 2% and this is what I'm suggesting but it's very difficult. It depends on how they communicate. They are very successful in December when they decided to cut I mean they went back to the original level but the market reaction was not bad so the communication was very good but depending on how the market react we don't know what will happen. There's no how to say there's no consensus so maybe drug was lucky the market understood but we never know next time next year whether ECB will do successfully. Liquidity in Japan the market is highly distorted you can imagine the Japanese government market is highly distorted so you can look at BOJ's website every month they release liquidity indicator so they closely look at like bid as ratio price impact very clear from January last year the liquidity deteriorated even more so already JGB market is highly distorted what's more the last September this pegging policy I think this will create a different sort of distortion because pegging 0% such a long term interest you can see it's really remove the price information that is more challenging when they exit so that's why I keep saying BOJ introduced this policy in September it was better than negative interest but BOJ should not continue this pegging at 0% for too long if they do it too long it create another side effect so I said this year when inflation time positive maybe BOJ should increase 0% targets to say 0.5 or introduce range more flexibility is important but at that time because the target is higher then BOJ does not need to buy more that much so BOJ can reduce from 80 to 60 gradually that is an idea I'm talking I'm saying in public unwinding so this is unwinding one story so unwinding I don't want to say this is like a tightening of monetary policy the idea is in order to continue with inflation maybe we need to reduce a little bit now so that central bank can provide accommodation longer I think we should explain in this way rather than unwinding or tightening thanks we are starting on the issue there was a discussion here on the issue last week some of the things you are talking about in the interest rates whether several mental inflation targets were too low another Japan is special and there are institutionalised factors like the very high debt rates and so on but if you just think more about your you can't argue that it would be easier to manage the inflation target will say 4% you wouldn't have a lower bound problem the bottom of the negative interest rates which they are only mine but so long as cash so long as you are not charging the holders of cash there is going to be a difference on what you can hollowing negative interest rates can go in practice and as I said in Japan there may be very special factors in the society otherwise governing or influencing decisions that may be made but certainly a case that may last week that would be easier to manage is that a question of inflation being let go out of control or that if the target were 3% or 4% the ups and downs of the cycle would be easier to manage maybe you would like to comment on that seeing that monetary policy has been having been so effective in terms of management so is it reasonable to say that it was a physical policy that doesn't tell the work in terms of the state of mind and the economy and okay I have led to this okay I was given a big dash and you raised the question about is monetary policy monetizing the dash but would that be a bound thing or is it helpful if it's helping to say that yep in terms of the yen does the monetary plan have a target on the end does it want a weaker yen it generally has wanted a weaker yen and you talked about the hedge fund temporary do you see that being all around your opinion on that okay so first question is about raising inflation target right can I say that so like originally in 2010 in those days chief economist by IMF mentioned that and also Krugma and so on I think because in Japan even 2% target the public doesn't want it they think somehow in Japan households have an upward bias in their perception of inflation and inflation expectation even when there was a mild deflation always households felt prices are going up and prices will go up so I think the reason is that since 2000 the Japanese wages nominal and real wages dropping and in the meanwhile the food prices going up from 3 commodity price hike and from 2013 in depreciation consumers are very sensitive to the food prices so while income is dropping there's no hope for the wage increase and food prices are going up so I guess started to feel the prices are high from this title budget so the problem is that this upward bias is so big in Japan compares to Euro area United States England I checked that so it's very unique so under this situation there's a household survey and they ask what do you think the price hike is favorable or unfavorable 80% of people say unfavorable now Bank of England does a similar survey to the household and then question is what do you think about this 2% target there's some options more than 50% of the respondents say 2% target is just right if you are just right and should go up more than 60% this is a very clear sign that in UK inflation expectation is anchored it's accepted and it's understood but Japan is not that so under that situation raising 4% I think even create even more anger I think so I understand it but I think in Japan it doesn't help in terms of improving aggregate demand and inflation the second question Mr. Turner former FSA in UK often talk about this his idea is that because Japanese debt is so huge there's no way for the government to pay it so then whatever government does the fiscal stimulus everybody worry about the future higher tax lower expenditures so fiscal policy is not stimulus so he's saying that maybe the Bank of Japan have lots of interest during perpetual bond exchanging to the non-interest during perpetual bond and in that way if the public understand that and public feel okay so now I don't have to pay higher taxes they don't need to face lower expenditure in the future so this inter-temporal government constraint will be modified that is his idea that's reasonable, understandable but I really think I don't think that will generate demand why because we have already aging society more than 20% of people above 65 everybody worry about how long they will live and they want to maintain certain income so if the country is already have a very high level of aging I think that part is dominate so to be an idea is understandable but it's not that doesn't mean it will generate demand and also the idea of this idea means that beauty will keep government bond forever I mean should we do it monetary policy is supposed to be temporarily eventually we stop it and eventually we should get rid of that impact from balance sheet that is idea but if we really tell central bank to keep it forever that is completely different environment and I'm not sure if we should do it then if that means meaning that if the central bank has no interest income no senior age so that means central bank will have deficit forever so then we really have to change the current system because again do you remember when I was a board member in any central bank we always check the soundness of balance sheet and because we are director and we have responsibility to maintain soundness so then we have to get rid of this kind of idea if we want to keep the government bond forever we really have to change the game so otherwise if we maintain current system I don't think it consistent that's what I said to him by the way directly it doesn't fit to our system exchange rate you know any central bank I think ECB as well no central bank really explicitly target exchange rate and do not even take it it's not going to be major discussion issue of course some people may think exchange yen's depreciation will help so there is no target but I think what we can say is that in the case of Japan the fair value so the equilibrium exchange rate yen data rate is between 100 and 110 so it depends on the methodology so at one point it went to 125 that was May 2015 I think that was a bit undervalued then some people will suffer so means at that time the import price started go up import food price started go up so household started to complain household are very sensitive to food prices so what will happen is that when they feel the prices are going up they have to spend more then they reduce the non-essential expenditures like clothes tourism and that's happened I can see that from household service you see so I don't think I don't buy the idea of generating excessive depreciation in order to achieve 2% and that's not sustainable and if household cannot accept it in the end central bank will lose so I don't buy that kind of ideas never I'm curious my name I remember how things to achieve and I try to understand the economics but my main interest really is the politics and the household and it just seems to me that and I'm interested in what you told us about Japanese households understanding in certain terms and how they react to food I think that in Europe when there was talk of quantitative easing that there was a popular perception that there would be a trickle down that that would give some more money to households I think people now feel that trickle that quantitative easing didn't work because it's quantitative easing which helps commercial banks and doesn't get anywhere into the economy in terms of day to day spending and so on and I think also that the current situation apart from I understand the position of the ECB and at an absolutely crucial point the intervention of the ECB has been enormously valuable I accept that but there is a feeling that somehow or other the basic economic classical theories which we are following and so on they work for the banking system and the large economy out of sort of to go technically better but in fact they're not working for the day to day living in the economy and this has led to two radical ideas that are of some interest to me one which I'm sure you're familiar with which sounds mad when it's called the helicopter drop of money but I'd be interested to know what you think of that idea of getting spending power into the hands of a wider population and then also there's a growing interest in what is called basic universal income I think for a similar idea because of a similar concern because it would be a way of doing something for households it would be a way of bringing in some new thinking which may anticipate some of the things like ageing, automation all sorts of things and it's interesting that it's beginning to get airtime in different places so I think basically my question is how does the view of a banking structure and so on get more accepted by the general population and what do you think of these sort of different ideas basic universal income is like a minimum wage it's an unconditional payment yes a universal payment I see that opens a whole kind of worm snap we could be here for no I mean I know that but I'm just interested sorry I've been busy for too many years I've spent a long time talking about it I'm not going to be interested in a reaction I've learned so much about central banking I see I see I think Japan also expected this to go down but the problem is that in an ageing society and declining population the potential economic growth is not and initially when the BEOJ introduced QQE I think that the Japan projected this potential economic growth will go up but that didn't happen so if this potential economic growth does not pick up then the corporate sector do not see an increase in expected economic growth and the household do not see an increase in expected wage so of course they don't put a lot of money in a business investment or consumption so I think that was a problem that Japan faced and also Europe so as a result like you said radical idea came helicopter money Mr. Starner's idea is one thing so pure idea of helicopter money means the central bank just provide cash to people right I hear that ECB can do it there are no constraints in terms of EU treaties so if they want it they can do it but they need to get consensus about 19 central bank in the case of bank of Japan I think it's not included in the available tools but of course they can change the law but I think there will be some process which leads to the change in the bank of Japan law whether they can do it so another way is that indirect helicopter money so the central bank can buy government bond the government use that proceeds to provide money to low income people small scale but government is doing that in Japan so in some sense they are utilizing that opportunity low interest rate they want to call current station somewhat similar to helicopter money they are already doing it but still it's not really enough to generate aggregate demand so here is the issue I understand people say fiscal expansion should be undertaken in Japan but before the long history of Japan like 1990s and the beginning of 2000 already government did a lot of public investment huge debt so in another world Japan did already lots of expansionary fiscal policy in the past so if we don't design very carefully we just end up with a huge debt so I don't completely deny the idea of helicopter money but we have to design very carefully otherwise we just end up with a huge debt and only undermining the fiscal discipline so I don't deny it but we have to do it very carefully ok maybe we leave it there I think the discussion on the inflation target reminded me of a discussion I think in this room it must be 15 years ago when Dr Tiedmeier was asked by Jim O'Leary would he prefer an inflation of 0.2% or 1.8% and surprisingly we got a straight answer which is I prefer 1.8% because with quality improvements it's more akin to price stability so that stuck in my head after all these years so that was that was a great man's view I want to thank Professor Shearer I'm not any wiser but I am much better informed about something I knew very little about I hope that you found the same so thank you very much for a really interesting presentation