Euro faces chal­lenges ahead, says Nishimura

The Pak Banker - - Front Page -


Mr Kiy­ohiko G Nishimura, Deputy Gover­nor of the Bank of Ja­pan ad­dress­ing at the Panel Dis­cus­sion hosted by the Deutsche Bank Group said he was very grate­ful to the or­ga­nizer for giv­ing me the op­por­tu­nity to par­tic­i­pate in this panel hosted by the Deutsche Bank Group.

The panel can­not be more timely: its theme, as I in­ter­pret it, is how the cur­rent eu­ro­zone cri­sis should be re­solved and what the eu­ro­zone will look like in the fu­ture, with par­tic­u­lar em­pha­sis on the role of Asian in­vestors, es­pe­cially those from Ja­pan. Since the Euro­pean au­thor­i­ties share a firm com­mit­ment to save the euro,

I be­lieve that the whole project of the euro ul­ti­mately will suc­ceed. Given the scale and com­plex­ity of the prob­lems fac­ing Europe, how­ever, there is likely to be a long and bumpy road ahead to­ward a gen­uine mone­tary and eco­nomic union. To­day, I will share my views - which also re­flect some of the con­cerns of Ja­panese mar­ket par­tic­i­pants - on crit­i­cal is­sues re­gard­ing the euro in three time hori­zons: short, medium, and long term.

Short-term chal­lenge: cri­sis con­tain­ment

Let me start with the short­term is­sue of cri­sis con­tain­ment. In this re­spect, to con­vince in­vestors is the key, and thus top pri­or­ity should be given to hav­ing a strong fire­wall and putting in place pow­er­ful fire ex­tin­guish­ers in suf­fi­cient num­bers. Money mar­kets re­main sta­ble cur­rently, and sov­er­eign bond yields in Spain and Italy have de­clined no­tice­ably in re­sponse to the prom­ise of bond pur­chases by the Euro­pean Cen­tral Bank (ECB).

How­ever, the yields re­main at el­e­vated lev­els, while in con­trast ma­jor Euro­pean coun­tries' shorter-end sov­er­eign yields continue to be ex­tremely low and in some cases neg­a­tive due pri­mar­ily to in­vestors' pref­er­ence for safety. In short, strong ner­vous­ness con­tin­ues to linger in fi­nan­cial mar­kets. Thus, it is vi­tal to pre­vent fur­ther shocks from trig­ger­ing mar­ket dis­rup­tions. Right now, there seem to be no par­tic­u­lar fund­ing prob­lems for fi­nan­cial in­sti­tu­tions out­side Europe, in­clud­ing those in Ja­pan.

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