Japanese economy faces troubles: BOJ

TOKYO

Mr Masaaki Shirakawa, Governor of the Bank of Japan addressing at the International Council Meeting of the Bretton Woods Committee said it is an honor to be a part of this esteemed panel. With the hope of stimulating further debate, I would like to discuss three lessons from the global financial crisis and the resulting challenges they present.

First, in this globally interconnected world, nothing is purely regional anymore. A global perspective is crucial. When the euro area crisis was initially brewing a couple of years back, there was reluctance from our European colleagues to discuss it as an issue with global implications.

The euro area economy was recovering and it was argued that the current account of the euro area as a whole was balanced and that intra-area imbalances were manageable. It was presented as a region- al problem with regional solutions. We all know now that this was not the case. The euro area crisis has impacted global growth through both trade and financial channels, probably in a much larger way than initially expected. Resolving the euro area crisis has become a key agenda item for the G20, and the IMF is playing a key role together with the euro area core countries towards its resolution.

To give another example, when economic growth decelerated in the advanced economies last year, there was hope that the emerging economies, especially those in the Asia would pick up the slack. Asian economies provided approximately 40% of global growth in 2011 and their share in global exports was more than 30% in 2011. This, however, did not mean they were immune from the slowdown of the European economy. Weakness in Europe has impacted Chinese exports, and through the regional supply chain.