Advanced and Emerging Economies– Two‐speed Recovery –

23 November 2010

Bauhinia Foundation Research Centre

Masaaki ShirakawaMasaaki ShirakawaGovernor of the Bank of Japan

Japan’s “Silver Yen” and Hong Kong’s “Silver Yuan”

Slide 1

Japan s  Silver Yen  and Hong Kong s  Silver Yuanin the 19th century

Japan’s Silver Yen Hong Kong’s Silver Yuan

Source: Currency Museum, Institute for Monetary and Economic Studies, Bank of Japan.

Slide 2

Hong Kong as an Important Trading Partner for Japan

Share of Japan's Exports by Country and Region Share of Japan’s Exports of Agricultural Forestry andShare of Japan s Exports by Country and Region(2009)

Share of Japan s Exports of Agricultural, Forestry andFishery Products by Country and Region (2009)

(%) (%)

1 China 18.9 1 Hong Kong 22.21 China 18.9 1 Hong Kong 22.2

2 US 16.1 2 US 16.4

3 Korea 8.1 3 Taiwan 13.1

4 Taiwan 6.3 4 China 10.4

5 Hong Kong 5.5 5 Korea 10.3

6 Thailand 3.8 6 Thailand 4.1

7 Singapore 3.6 7 Singapore 2.8

8 Germany 2.9 8 Vietnam 2.7

9 Netherlands 2.3 9 Australia 1.2

10 M l i 2 2 10 Phili i 1 1

Source: Ministry of Finance, Trade Statistics.

10 Malaysia 2.2 10 Philippines 1.1

Bank of Japan Representative Office in Hong Kong

Slide 3

Bank of Japan Representative Office in Hong Kong

IMF W ld E i O l k (O b 2010)

Slide 4

IMF World Economic Outlook (October 2010)

Contribution to World GDP Growth (%)Contribution to World GDP Growth (%)

2009 2010 2011

World GDP growth (yoy) -0.6 4.8 4.2

United States -0.5 0.5 0.5

Euro area -0.6 0.2 0.2

Japan -0.3 0.2 0.1

Emerging Asia 1.5 2.4 2.2

Other countries -0.6 1.4 1.3

Notes: 1. Contributions to world GDP growth are calculated by the Bank of Japan staff.2. Emerging Asia is here defined as China, India, Korea, Taiwan POC, Hong Kong SAR, Singapore, Thailand, Indonesia,Malaysia, the Philippines, and Vietnam.

Source: International Monetary Fund, World Economic Outlook, October 2010.

Japan’s Real Exports

Slide 5

p pThe recovery of Japan’s real exports is mainly driven by Asian economies.

15(s.a., q/q % chg.)

5

10

15

-5

0

5

-15

-10

-25

-20

-300 7 0 8 0 9 1 0

Others US EU ASEAN4 NIEs China Total

Note: NIEs includes South Korea, Taiwan, Hong Kong, and Singapore. ASEAN4 includes Thailand, Malaysia, the Philippines, and Indonesia.Source: Ministry of Finance, Trade Statistics.

Japan’s Economic GrowthSlide 6

pEconomic growth decelerated significantly in the 1990s, called “Lost Decade.”

10 0(y/y % chg.)

8.0 

10.0 

4.0 

6.0  4.6%(1970s)

4.4%(1980s)

2.0 1.5%(1990s)

1.7%(2000‐07)

‐2.0 

0.0 (2000 07)

‐6.0

‐4.0 

Source: Cabinet Office, Annual Report on National Accounts.

6.0 

71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09

Japan’s Mild Deflation since 1998

Slide 7

4 105(2005=100) (y/y chg, %)

Changes from a year earlier  (right‐scaled)Index level (left‐scaled)

pConsumer Price Index

21002%

2 100

1%

0 95

‐2 90

19972004 20042008 20082010 19972010

Cumulative (%) ‐2.6 +1.5 ‐2.2 ‐3.3

485

Annualized (%) ‐0.4 +0.4 ‐1.1 ‐0.3

‐4 85

Note: Figures are adjusted for the impact of consumption tax, which was introduced at 3 percent in 1989, and raised to 5 percent in 1997.Source: Ministry of Internal Affairs and Communications, Consumer Price Index. 

“Three Excesses”Slide 8

Resolution of “three excesses” led to the full-fledged recovery.

(DI <"excessive" "insufficient"> % points)

Production Capacity DI (manufacturing) Ratio of debts to nominal GDP(Private non financial corporations)(% )

20

30

40

Excessive

insufficient

(DI < excessive   ‐ insufficient >, % points)

110

120

130

140(Private non‐financial corporations)(% )

‐10

0

10

Large enterprises

Small and medium‐sized enterprises

insufficient

80

90

100

110

‐20

85 87 89 91 93 95 97 99 01 03 05 07

(DI <"excessive" "insufficient"> % points)

Employment Condition DI (all industries)

70

85 87 89 91 93 95 97 99 01 03 05 07

Notes: 1. The Tankan has been revised from the March 2004 survey. Figures up to the December 2003 survey are based on the previous data sets. Figures from the December 2003 survey are on a new basis.0

10

20

30

40Excessive

insufficient

(DI < excessive   ‐ insufficient >, % points)

y2. Debts is the sum of loans and securities (other 

than equities) in private non‐financial corporations. Sources: Cabinet Office, Annual Report on National 

Accounts; Bank of Japan, Bank of Japan, Tankan , Short‐Term Economic Survey of Enterprises in Japan

‐40

‐30

‐20

‐10

0

Large enterprises

Small and medium‐sized enterprises Short Term Economic Survey of Enterprises in Japan, Flow of Funds.

‐60

‐50

85 87 89 91 93 95 97 99 01 03 05 07

Small and medium sized enterprises

Labor Force GrowthSlide 9

Japan’s declining trend in labor force growth is significant amongG-7 countries.

1 5

2.0 (y/y % chg.)

1.0 

1.5 

0.5 

‐0.5 

0.0 Japan USACanada GermanyFrance UK

‐1.0 

1980s 1990s 2000s

France UKItaly

Source: Organisation for Economic Co‐operation and Development.

1980s 1990s 2000s

Slide 10

Consumer Price Index in Terms of Goods and Servicesin Advanced Economies

Most of the distinction between Japan and other advanced economies can be explained by the difference in service pricescan be explained by the difference in service prices.

30(Cumulative changes from 1998 to 2010, %)

20

25

5

10

15

Goods

Service

‐5

0

5 Service

Total

‐10

5

Japan USA Euro Area UK

Sources: Ministry of Internal Affairs and Communications, Consumer Price Index; Bureau of Labor Statistics,  Consumer Price Index;Eurostat, Harmonized Indices of Consumer Prices; Office for National Statistics, Consumer Price Index.

High Growth Era in Japan (mid 1950s‐early 70s)

Slide 11

High Growth Era in Japan (mid 1950s early 70s)and China (1990‐2010)

1955 60 65 70 75 80 (For Japan)1955 60 65 70 75 80

14%

16%

( p )

8%

10%

12%

4%

6%

8%

China（90-09）Japan's Growth （upper axis）

0%

2%

4%China's Average Growth（90-05）

Japan（56-80）

Japan's Average Growth（56-70）

Japan's Average Growth （56-70, upper axis）

China's Growth （lower axis）

Chi ' A G th （90 05 l i ）

-2%

1990 95 2000 05 10

China's Average Growth （90-05, lower axis）

(For China)

Sources: Cabinet Office, National Accounts; National Bureau of Statistics of China, National Accounts.

Equity Flow into Emerging Economies

Slide 12

Equity Flow into Emerging Economies

40 (USD billions)

20

30

10

-10

0

-30

-20

Net purchases of emerging market equities by non-residential investors

-40 2008 2009 2010

Note:  The figure above is the sum of net purchases of emerging market equities in India, South Korea, Taiwan, Indonesia, Thailand, the Philippines and Brazil.

Sources: Bloomberg, CEIC.

Stock Prices in Asian Emerging Economies

Slide 13

250

300historical peak

250

300

hi t i l k250

300

250

300

Indonesia Philippines India Malaysia

150

200

250

150

200

historical peak

150

200historical peak

150

200historical peak

0

50

100

09/01 10/01

0

50

100

09/01 10/01

0

50

100

09/01 10/01

0

50

100

09/01 10/0109/01 10/01 09/01 10/01

300

09/01 10/0109/01 10/01

300 300300

Hong Kong South Korea Thailand China

150

200

250

150

200

250

150

200

250

150

200

250

0

50

100

0

50

100

0

50

100

0

50

100

Source: Bloomberg.

0

09/01 10/01

0

09/01 10/01

0

09/01 10/01

0

09/01 10/01

F i R i A i E i E i

Slide 14

Foreign Reserves in Asian Emerging Economies

4,500（billion U.S.$）

3 500

4,000

Philippines

3,000

3,500 Philippines

Indonesia

Malaysia

2,000

2,500Thailand

Singapore

H K

1,000

1,500Hong Kong

Taiwan

Korea

0

500 China

Source: CEIC.

0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 10

Economic Growth in G‐7 CountriesSlide 15

For real GDP growth, Japan slipped down to a lower-class in G-7 in the 1990s.Nevertheless, in real GDP growth per worker, Japan shows comparable

f t th US d l t d idl i th 1990

5.0 (y/y chg, %)

4.0 (y/ychg, %)

performance to the US, even decelerated rapidly in the 1990s.

Real GDP per workerReal GDP

4.0 

Japan USACanada GermanyFrance UKItaly

3.0 

3.0 

y

2.0 

1.0

2.0 

0.0 

1.0 

0.0 

1.0 

‐1.0 

1980 1990 20001980s 1990s 2000s 1980s 1990s 2000s

Notes: 1. The figures for Germany of the 1980s are those of West Germany.  The figures for Germany for the 1990s are the average from 1992 to 1999.2. The figures for the period 2000s are from 2000 to 2008.

Sources:  Organisation for Economic Co‐operation and Development and other governmental sources.

LIBOR‐OIS spreads

Slide 16

(%)

Japan’s financial system was relatively stable during the financial crisis.

3.5

4.0

USD

2.5

3.0

GBP

1.5

2.0 EUR

0.5

1.0

JPY

0.0 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10

Note: 3 months.Source:  Bloomberg.

Sh i J ’ E t b C t d R i

Slide 17

Shares in Japan’s Exports by Country and Region

100 (%)

80

60

Others

USA

EU

40

ASEAN4

NIEs

China

20

0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Note: NIEs includes South Korea, Taiwan, Hong Kong, and Singapore. ASEAN4 includes Thailand, Malaysia, the Philippines, and Indonesia.Source:  Ministry of Finance, Trade Statistics.

l i G

Slide 18

Total Primary Energy Input per GDPJapan’s energy efficiency is the highest in the world.（Index Japan=1）

16.8

16

18

（Index, Japan=1）

10

12

14

6.1 6.3

7.88.3 8.3

6

8

10

1.01.8 2.1 2.5

3.1 3.2 3.1

2

4

0

Japan EU27 US Australia Canada Korea Thailand Middle India Indonesia China Russia WorldEast

Sources:  International Energy Agency, Energy Balances of OECD Countries 2009 Edition, Energy Balances of Non‐ OECD Countries 2009 Edition;Agency for Natural Resources and Energy, Annual Energy Report FY 2010 (Japanese version).

Global Foreign Exchange Market Turnover

Slide 19

Global Foreign Exchange Market Turnover(Percentage shares of currency as of April 2010)

US dollar

42%

4%

18%US dollar

Euro

10%

6% Japanese yen

Pound sterling

20% Asian Currencies (excluding Japanese yen)

Note:  Asian currencies include Hong Kong dollar, Korean won, Singapore dollar, Indian rupee, New Taiwan dollar, Chinese renminbi,Malaysian ringgit, Thai baht, and Indonesian rupiah.

Source: Bank for International Settlements Triennial Central Bank Survey

Other Currencies

Source:  Bank for International Settlements, Triennial Central Bank Survey.