Euro faces challenges ahead, says Nishimura
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.