Central Banks During COVID-19: Fed, BOJ, and ECB Responses

[00:00:05]good afternoon this is Joshua Walker at the Japan Society okay actually I'm not in Japan Society but we are incredibly proud to be hosting this virtual event with Columbia and with all of you thank you for joining today on a Friday it seems like days and weekdays and weekends have all merged together but today's conversation about the role of central banks encoded 19 couldn't be more timely and I couldn't be more excited to get to the conversation that we're gonna have today my job is to simply thank you all for being here but also to thank all of our sponsors who made this possible especially during this period of Ko but it's a bit impossible to do things and we can't do our work without them so first and foremost thank you to our global leader city and Deloitte our corporate partners Mesa Ho Toyota and the United Airlines and then of course our co-organizers the Center on Japanese economy and business at Columbia Business School and 80 PEC Study Center at Columbia University without further ado let me turn this over to Professor each of the who's the director of programs a public pension and sovereign funds who's known to all of us in the Japanese space Ito sensei thank you for joining us thank you good afternoon everyone my name is taka Toshiko and you have to own the program public pension the sovereign funds at the CJ Columbia University and I'm also teaching at the School of International and public affairs Columbia University and you have the seat I'd like to give the welcome on behalf of the deputy Weinstein who is on leave and Hugh matric was a founder of the CJ who cannot join this time so I appreciate your joining us today despite the sterling time we are all facing due to the pandemic before we begin that I'd like to take a moment to thank all the CTF sponsors for their generous donations and support especially in the face of this current crisis and about the the topic of discussion I think it's very timely and important that we have all seen the responses of the major central banks this week and we hear from the experts who best explain to us what is going on in in Washington Tokyo and Beyond and I'm really looking forward to learning all about central bank's changing responding to the pandemic to speak and yeah thank you very much and back to you dr. Jose all right thank you so much ito sensei let's get right to the conversation as we said this is a time we talk like we couldn't have a better panel here and we have a great moderator who's gonna lead us through this Kathleen Hays is a global economic and policy editor at Bloomberg television and radio Kathleen over to you thank you again well thank you so much I want to say hello to everyone thank you for joining us today and of course what not only what better panelists what better organization to sponsor and hold this event but what a great week the week kicked off with the Bank of Japan making a decision making a big policy announcement followed up by the Federal Reserve and topping it off of the European Central Bank it could not have been time better to look at how central banks actually in many ways paralleling each other echoing each other in how they're dealing with this pandemic how they're dealing with what has become a global crisis we are going to be hearing now from Koji Nakamura he is the general manager of the Americas for the Bank of Japan great to have him here Patricia master school of international public affairs Columbia University she was at the Office of Financial Research analysis at Treasury for many years 20 years at the New York Fed and she was on course on the open markets desk a senior economists senior manager so two people very well-positioned to look at what we are seeing so far and what central banks will can and maybe even must do next so Nakamura son why don't you start again BOJ meant Monday some big announcements I think a lot of people wonder what kind of impact they'll have and just what they mean mm-hmm okay thank you very much for having me here it's my great pleasure to discuss important issues at a critical juncture with distinct participants today before my presentation I have two remarks first it's a huge of center bankers disclaimer views here's mine and on necessarily a 50th of being the second my background is a picture of kamikochi Japan outs National Park where I was branch manager in the region two years ago and I wish I could be there but I'm locked down in New York for tour so let me start my presentation at the beginning of this year almost nobody expected that coronavirus pandemic with the global economy into crisis since the global financial market started to react at spreads of the Quran abayas late February the central banks around the grow had provided emergency measures very swiftly thanks to their painful experiences of the global financial crisis central banks are well prepared to act against market turmoil and expand or we activate emergency measures let me you see my slides 10 ishida this slide shows the central bank's policy measures there are different taxonomy of unconventional method policy measures here Iook at words for liquidity provision interest rate and for guidance as it purchases and lending programs and facilities as for the bilges case or requited provision we have engaging active occupations and the u.s. dollar funding operations backed by the stock lines with pivotal research regarding interest rates and for guidance we maintained a look of control keeping short in term interest rate minus 0.1 percent and long-term interest rate at 0% and also we have a Saburo for guidance regarding asset purchases we purchase various assets even before the coroner virus outbreak and this time we increase the amount of purchases of assets including JG beads cps in the corporate bonds and ETFs in the juries on lending program we have several existing lending programs and this time we introduce a new committee 19 special fund supply operations in March and then in April we announced that we will introduce a new fund provision measures for SME financing in near future by these measures we have mainly three goals first stabilizing financial markets second supporting in corporate and household finance a third stimulating the economy at the initial phase of the crisis which saw huge market volatility and investors tried to secure cash at hand and sell risky assets even you use government bonds were sold but this juncture stabilized in financial markets is essential and a central bank should act as a market maker of last resort then due to the social distancing measures entire Commission down on this occasion central banks working together with the government should provide a support for corporate and household financing asset purchases and lending programs programs are effective then we also needed to stimulate economy low and stable interest rate environment is essential as fishery after social distance measures are lifted in order to bring the economy back to the normal level this is slide of the year central bank's balance sheet as a result of these measures central bank's balance sheets are expanding rapidly since March as you can see the right hand side of the chart the BOJ has implemented various and convergent by their policy measures even before the colon virus outbreak in order to bring the information back to the target about two percent so that the balanced reach size of the BOJ in comparison with the size of the column is much larger as you can see this slide shows the latest forecasts of the GDP and the CPI by the BOJ board members for fiscal year 2020 the GDP growth is from minus 5 to minus 3 percent for fiscal year 2021 GDP growth becomes robust due to the pent up demand the CPI equation will be muted for a while due to the stagnant of economy and low commodity prices and then go up moderately but there's a huge uncertainties and the downside risks a large let me stop here thank you well mr. McCotter thank you very much for putting on a table I just have to interject that I love that chart I use it on Bloomberg television all the time when you talk about central bank's being aggressive and who's being most aggressive because BOJ if you look at the you know the balance sheets percent of GDP clearly clearly is is very very strong so let's go to you now professor monster taking a look at the Fed for us certainly good afternoon everyone I'm gonna share my screen here to put my slides up I hope everyone can see that so I'm going to pick up where Nakamura Sanne has started but to talk to shift over and talk about the US and I completely agree with his description in fact my description of what's happened in the United States economy is that it stepped off a cliff in the middle of March as this particular chart makes very clear this is an index of weekly economic activity so it uses high-frequency weekly indicators but it is scaled to match the year-over-year changes in US GDP you can see the financial crisis on the far left and you can see the stepping off the cliff on the right the rate at which the US economy is contracted in the last six weeks is absolutely astonishing and if it makes you a little scared that's probably not such a bad thing so the policy response on the other side of course in the US has been all at once and when you have a real economy that collapsed that quickly which almost never happens policies need to act and act as quickly as they possibly can I described most of the policy changes both fiscal and monetary that had been undertaken to date or that are still in the planning stages as cushion the blow policies they are bridges to bridge until such time as the shutdowns can be eased and hopefully that businesses can reopen and jobs can restart this is a talk about monetary not fiscal policy but I think it's interesting that fiscal policy the United States has does fit that mold it's very focused on transfer payments on guarantees and on providing equity to companies but this is about monetary policy so let me talk in a little more detail about that I call what the Federal Reserve has done is basically falling into three broad categories similar to the categories that code you used a moment ago one is monetary policy immediately immediately the Federal Reserve cut the interest rate policy interest rate to zero and they started using very aggressive forward guidance they also embarked on a massive and I mean massive expansion in asset purchases part of that was because of the turmoil in financial markets but part of it was also an easing of monetary policy using the usual unconventional jewel I want to point out how just how massive this was for the better part of a week in the middle of March the Federal Reserve was buying as many securities in a day as they bought in a month more in fact than they bought in any month during the financial crisis about by about next week they will have bought as many securities in six or seven weeks as they bought for both qe1 and qe2 combined absolutely extraordinarily large purchases the other piece of this of course has been liquidity provision lender of last resort expansions expanding lending to the financial system there the take-up has been relatively small not zero but that's because the financial system was was in pretty good shape walking into this walking into this crisis which has actually been a bit of a source of strength the other piece of this of course is international endure of last resort and the dollar swap lines those in fact have been the biggest parts of the Fed lending something on there were four hundred billion dollars so far last but not least the feds actions have been about targeted credit facilities meaning bridge financing if you like for firms and households and state local governments this is very much uncharted territory or mostly uncharted territory for the Federal Reserve and many of these programs are brand-new and are being created from scratch while these are very promising and have had some pretty big market confidence effects but they haven't them and for the most part many of them are still on the drawing board now we expect to see quite a few of them in the coming days and weeks to be implemented but that part of the bridge of the of the bridge if you like of the cushion the blow is not quite in place in the US here's the Fed's balance sheet again I pick March 11th as the the last pre-crisis week I guess the Fed's balance sheet was a four point three trillion dollars it is now six point six trillion dollars nearly all of that as I mentioned are the securities purchases with a smaller amount of it being the swap lines so what happens next well first of all there's obviously huge huge macroeconomic uncertainty about how both when the shutdowns are going to end to degree to which they can end and how much recovery there will be even after shutdowns in the United States and it's obvious we're having a very sharp and very deep recession the recovery I'm dubious about the v-shaped myself someone I was on I spoke to earlier today called it a Nike swoosh maybe that's a better description of where I think we might come out but here's the risk the longer the shutdown and the downturn lasts then there is a much higher risk of very serious financial distress and the banking in the financial system have been strong for this point they're increasing their lending right now if they are not able to continue to do that and adding financial distress to an already weak economy could darken the economic outlook quite a bit so the speed and the timing really depend on the virus itself obviously and the success and the ability of policies to actually bridge the gap the global outlook obviously is grim there's a lack of fiscal space in many countries that is not a problem that fortunately Japan and the United States are facing right now but it is in many countries and as I mentioned earlier the liquidity needs are very large I think there are three major questions for central bank's about the credit programs about what they do next and that question about central bank independence this is a lot of these credit programs or quasi fiscal but I'm guessing those are things that Kathleen is going to ask and the audience are going to ask us a bunch of questions about so I will stop there all right well thank you so much and in fact yeah I think our audience questions that we've accumulated so far touch on a lot of really interesting important big issues with and you certainly outlined several of them there you know I want to start by looking at some of the specifics of the meetings this week and so I want to go back to you and Nakamoto son you know the BOJ you mentioned some very specific steps and anything that had to do with bond purchases was really front and center for markets like increasing corporate bond purchases increasing commercial paper purchases but I think the unlimited government bond buying people okay there it is whatever it takes that's a theme for for the central banks but at the same time people pointed out that you know the BOJ had already pulled back its purchases what you can do 80 trillion in a year over the past year through April it was something like 14 trillion so the capacity was already there to buy more bonds and people are just wondering and when in that chart you showed how big the balance sheet is relative to GDP something like 110 percent I one common phrase I heard but this was really more of a communication step part of the communication strategy to tell the world Bo J's what he did more than it was actually announcing something that would be a big policy step how do you what do you think of that well regarding the jtv purchase we just eliminate the wording of the eritrean yeah but this is the commitment that we can do whatever we needed and we purchased the JGBs as long as I needed in order to keep the long-term interest rate as a third percent because we moved to the lrc frame of a helical control framework a couple of years ago and then GP low interest rates for the time being so this is the most important factor for the akkanee you know economic entities to get the money from the market so stable long-term interest rates the crucial factor in order to attain the stable here the interest rate of long-term interest rates then we needed to purchase the Diddley's needed that's the framework so then we're not sure because of the market could be more barakah in the future due to the additional shocks then in that case we might need to purchase more ggb is comparing with the door demand in the past several years so limiting the ad treant are young might be a better idea to do more flexible the options for bid BOJ to contact the amounted policy could I just follow up on that because you mentioned it is market volatility one of the things the BOJ would be watching to go ahead and take that step and step up the purchases yeah well liquidity condition is very important for the you know the common bond market not only in Japan but also the United States we saw the huge spikes in the US Treasury market in the mid March and due to the dear should sharks right so even for the safe hazard market we could see the a volatility so in that case nobody but the central bank could intervene market the stability that's the first line of defense and that's the AR market maker was a result okay well Jay Powell and his press conference which is really where all the news came from and many people considered it you know great masterful performance but it was pretty clear basically he said the feds ready to do more then he said meet more needs to be done by fed by Treasury some the Fed can do some Treasury must do do you see specific gaps that the Fed needs to fill at this point that the Treasury needs to fill do they need to do more I am afraid they're that everyone's going to have to do more I am not convinced as I mentioned earlier I'm not big on a v-shaped recovery which means if if economic weakness and unemployment and particularly small and medium firm bankruptcies are going to continue and I'm afraid they well or no so those things are slow to start back up again they don't just bounce right back then more on the fiscal side and potentially more on the monetary side may both be needed so the short answer is yes as for an and effectively in chair Powell eluding several times in the press conference to we're planning without specifics yet but that's not a surprise told you that they are thinking about what they could do next in terms of near-term gaps I think the by far the most important thing that needs to get done is to get more of the credit programs I would say particularly for the small and medium-sized business lending up and running now though lending parts of those programs of course are federal reserve lending but very very importantly backstopped with US government's with US Treasury with taxpayer equity that takes the first lost position the Fed could not do that lending without that backstop from Treasury it literally would not be legal and that is actually an interesting contrast I think between the Fed and the BOJ but it does have that backstop but as a result those those programs and their design and particularly how much capital particularly how much capital is put into them is actually a Treasury decision it's not a Fed decision the design is obviously both since both agencies have a have a role in this and that's where the heavy cooperation is required but at this point speed speed speed really matters I'm I wouldn't want the to be the enemy of the good and I'm pretty sure that they're perfectly well aware of that I am another place where I think more will almost certainly have to be done is on the municipal side now fiscal Reshiram across the states is well fiscal it's not monetary and a lot of the municipal lending program that the Federal Reserve is is in will embark upon I think it's important I think it's very appropriately tied directly to tax revenues very short run and very narrow determining winners and losers among states and municipalities is inherently a political fiscal action and that's that's a place where if you asked me that more it might have to be done particularly on the fiscal side I would I would point there okay well of course I want to put to both of you so let's go back to the Bank of Japan how about you know how will you know what are you watching how do you know if you if and when you need to do more I mean you've got all these different things you're watching at once you've got the inflation you've got the growth you've got in fact in Japan still you know extending the lock down recently maybe there's somewhat different days with that but still so much being driven by the virus and what it does to the economy and how it all works out so how do you know when you need to do more well yeah it's true and also the trace point it out that the it's crucially depends on the duration of the lockdown and economic conditioning is crucial depending on the how long your lockdown will be and now the offensive sector is resilient and actually the actively a helping economy right now but as time goes by and then the we might have a more disastrous situation and in that case we need more in terms of the various policy measures including a monetary policy so there's a huge uncertainties and it crucial depends on the how the things of unfold in the future so we will consider the possibility of in various our options and see what kind of post measure that we used in the future if things are turning bad but at this moment we think the year we need to implement the existing measures and that we also have the one learning programming pipeline or the SME financing so we're now working on that and to provide our more financing to the entire university the important things right now okay well what's what what do you think for the Fed how will the Fed how would you tell them yes it's time to do more when there is I completely agree with Koji that the financial distress unfortunately you will know it when you see it and that's the point at which in particular perhaps more expansive not in terms of size but in terms of breaths lending facilities might be needed by the Federal Reserve for the financial sector itself the u.s.

[00:26:08]is a market-based financial system but most of the feds lending tools go through banks and the extent to which they might have to even further broaden out lending if there were widespread financial distress I think it is worth considering on the macro economy at this point my best estimate would be that there are a series of tools tools that have been used by other central bank's tools that have been discussed by governors in previous speeches that there must be looking at very carefully I'm thinking of things like governor Brainard's speech last year where she spoke about a slightly different version of yo curve control that effectively medium-term reinforcing forward guidance by commitments to basically keep rates at zero for a certain way out the u.s.

[00:26:58]yield curve certain of a certain portion of the way out there negative interest rates the the FOMC thus far has been pretty negative on negative interest rates they would be complex they're complex in any financial system to to implement but I learned something twelve years ago which is regarding the central banks which in strumice if it's needed if it's legal you don't never say never and so is that on the table I don't know obviously but I wouldn't be surprised if it's if there isn't leave someone thinking about it carefully that but the when you'd like to get some sense of whether the economy is leveling off after that terrible step off the cliff that I showed everyone earlier and if it is is that the time you need to do if it's not because it's shutdowns are continuing then almost for certain you have to do more if it levels off can you wait a bit perhaps okay well that's interesting is that's actually how Jane Powell sounded to a certain extent Dini I thought you guys both I know and especially for you Nakamura son you don't want to talk to eat I want to ask how much about ECB that's what I'm sort of stumbling around here because they didn't increase the pandemic purchase program but they did cut the rates on the t rlt o--'s and then did it put in the peltro so they've got all kinds of cheaper financing and for you this the same question for you Patricia in terms of the efficacy in terms of how that fits into what broadly what the BOJ is dealing with what the Fed is dealing with what do you see in this step that is is going to work what do you see as the difficulties in taking this kind of step and let's take with you start with you Nakamura son as somebody who's been has been you know applying this trade for many years well you know each central bank has the policy to is pretty much based on the assessment of the each financial systems and the financial environment of each country's dependence the about based financial systems so in order to estimate the economy and healthy financing the core perception has for it's better to use the abundant system rather than the marketplaces although we step in the market financing by purchasing the G the poor the year corporate bond and the concern of papers and so forth but their banking system the critical one and so that's why the we set up several hunting programs to provide the back financing to the cheap money to the and also incentive to the banks to provide a launch to the private sector maybe I think the European system is a pretty similar to Japan it's a banking central system and so encouraging the banking lending is the important steps as Trish said the u.s. is more market oriented financial system so working on the various asset might be a much better for the year what you go to your assistant so Trish then what about the EC being with what they're doing and of course what Christine Lagarde had her version she she echoed governor crota's she echoed Chair Powell you know the ECB going to do whatever is needed so so yes and so they they they certainly have given every indication that they're going to one important point I think is that the similarities here in a couple of instances are interesting for example the target Adele Tiaras putting their price at may not of certainly not a penalty rate maybe even a subsidization rate tells you that first of all moral hazard is not at the top of mind in this crisis which is absolutely correct for the record that the amount of risk that the central bank is willing to take is higher than normal I think that's really consistent across a different central bank the very central banks and the ECB the basically said the same thing and and and third that the target here is to go through the banking system the banking systems are stable if not healthy and get to the parts of the economy that really need the credit and if we have to kind of subsidize the financial system to do that maybe we'll do it now what's interesting is the Fed the Federal Reserve's proposed programs that actual lending terms there are at least two corporates and the small and medium-sized businesses are not at particularly concessionary rates so that's a contrast I think between what the ECB is doing or what the Federal Reserve is doing but the rest of the lending to mewtwo municipals to the PPP loans to the very small businesses those are very of course that's a fiscal policy program not a Fed program are very concessionary so I think there's a little contrast there the last piece I think that really matters though is the sort of quasi fiscal cooperation whether you like it or don't between the central bank and the government is really not possible for the ECB for the obvious reasons and I think that is a in in that regard that if you think that's a helpful component to what has been going on and with the with the Bank of Japan and the Federal Reserve in this particular unique situation then that's not something that the ECB that sort of fiscal Reshiram piece is there really not possible okay I want to get into a couple of questions from the audience and in fact I think this is a nice broad one that a lot of people have been asking since all these aggressive programs started it is central banks can provide nearly unlimited liquidity but how much can they offset the risk of business failure or personal bankruptcy in the sharp deep recession of the pandemic do we have to worry about that and on this one let's go first to you Patricia and then go to Nakamura's on absolutely a central bank's tools here are traditional tools liquidity monetary policy are not directly going to be able to stave off bankruptcy and so forth the credit lending programs these targeted credit lending programs which can which can only be done with fiscal backstop in the United States can help in that direction but again only help the way that you truly stave off massive drops in income large increases in unemployed large-scale bankruptcies in this particular case is mostly fiscal policy and while some of that fiscal policy being used to backstop lending by the central bank and be hopeful that is only going to be part of the answer it can't be the whole answer I completely agree I agree with Trish and at this moment we have seen this huge drop in the cash flows of the corporations even household and that we need to assist that their financing anyway but what central banks in the government needed to work together to help but as for the central banks lending it's the main tools and giving them money it's a government job so we need to cooperate the other two the sister II of various needs of the money of the Radia private sector okay well I'm not go sunny in that regard I mean the BOJ obviously has bought a lot of bonds because you know you've got that massive balance sheet relative to GDP taking worse if you were buying the ETF's BOJ has for some time now and I know that policy was was adjusted this week to change some specifics and rebalance some of the purchase but but so many thing about the BOJ as always has been the you know the the central bank innovator and disrupter right leaving on your curve control alright but I guess a lot of people are wondering it's does this mean then all the more that if the if not more needs to be done in Japan it's going to have to come more from the government which has this tighter link to the banking system which has the ability to spend money is that what's going to have to be done because it will be u JT willingness to do more feed fine but really the fiscal side the government side has to be there in greener in in greater measures I guess it crucial depends on the how things are unfolding future right if their crab sector needs a finance thing then the BOJ have much more significant load to provide a lot more money or liquidity and it needs the war you know your actual subsidies or any help at the credit side maybe government has a moral to provide the assistance to the private economy it Christa depends on the situation I guess the limit of the balance sheet or Center bands I guess we could do more if needed and based on the our experience of it two or three decades of the uncommitted multiple signatures if you do those measures with your camera calibration we don't see it here we could minimize the side effects and that could get the plasma side but it requires the true assessment of the economy in the financial system and to see what is needed for the policy measures and so forth that's crucially depends on the future developments okay you know there's a couple of questions and I'll sort of put it both of them in front you guys one is should central bank's assume credit risk in fighting the economic fallout from a crisis that's the broad very simple one okay a little more here to this one when central bank's take on risky assets opting not to have full credit protection from the Treasury Department or say from the Ministry of Finance so why don't you jump in on that one first so so the the I'm actually gonna start with the second one first because it's go ahead and an interesting individual case the one central bank that I know that has followed that or has received that sort of indemnification is actually the Bank of England from the UK government and a full indemnification that is not what the Federal Reserve has received from the Treasury Department so let me let me talk with us in a very Fed centric contest context the Federal Reserve can take risk they take risk whenever they do lender of last resort but the the risk that they can take is extremely limited and it's limited by law first of all they can't buy risky assets it at all they can the only way that they are doing the the municipal and corporate facilities that they're planning is because the first loss piece is being taken by the US taxpayer so the structure in the u.s. is for those facilities is not a complete guarantee it is that the Fed needs to be and I quote secured to its satisfaction which usually means it needs both collateral and a solvent counterparty and it can't do those for all of these special facilities unless they have at in this case US taxpayer backstops to do it so that's not the defense taking no risk and it always takes some it takes some what it lends to banks every day but in this particular case it couldn't do it and and that's a legal restriction in the u.s. maybe it's a safe one frankly in some ways if you think there should be a limit to how much central bank risk central banks can take but it's also not full indemnification and no one ever expects that at least in the Federal Reserve's case that they would be fully indemnified okay go my turn okay regarding the Aquarius they're lending from the beauty to the private sector it's fully covered by the cuatro and there's a little credit risks and in Japan we have credit guarantee programs and also we have government financial institutions which provide the emergency assistance lynnie between the private sector with the constituent terms and with there some credit guarantees and beauty has the providing the financing to develop the finest of sector with the cheaper price so regarding the credit facilities or Linux programs we have a pretty much many more credit risks regarding the asset purchases if there's a loss that isn't ID incurred by da BOJ for sure that's why we when we start be as a conscious program we ask the Ministry of Finance for the permission to engage in this program if the BOJ several assists of this said ketosis in that case the BOJ profit will declined and in that case the profit transfer to the government will be decline ultimately it is a kind of a fiscal cost so that's the reality so in the end well the abusive profit is part of the source of the equipment but every new sewer it is to admit the the implication for the taxpayers money so let me step in as a moderator emergency so let me go back to the negative interest rates that y is for the reserve and yo J so negative about native interest rates I so I'm not completely sure but I do know there are a couple of reasons and one of them has to do with the complexity of implementation of negative rates on one level you would think well a financial system that's more market-based might be able to handle negative rates more somewhat more easily but the difficulty in the United States is that we is the retail part of the financial system that is market-based rather as opposed to a bank based because we know the retail meaning small businesses and households reluctance to directly face negative interest rates is very high and the classic example of this in the United States are money market mutual funds which is there would need to be some pretty substantial changes in order for money market mutual funds to actually be allowed to give negative rates or there might be frankly a large-scale abandonment banks were still offering zero and that's not an insignificant structural change for the United States to figure out how to handle and I think at least some of the reluctance may be due to that there may be other reasons as well but well and I'm the effectiveness of the relative perceived relative effectiveness of of QE in the United States that wasn't felt really necessary in the last crisis so I think the question will become as if it appears much more necessary this time will the will the structural hurdles be able to be overcome or not not overnight that may be clear no country is implemented negative rates without some without some structural changes first but are they insurmountable my personal opinion is no they're not and it's an option that could be on the table interesting Boise okay I don't think the ability is negative of the negative interest rate force because we are implementing the negative me just cause it right now and whatever we were really introduced a negative interest force if it's time we see the huge drop in their longer-term interest rates that is the benefit of the minimum interest rate negative interest rate provide the huge huge down pressure on the long term interest which can be very stimulating for the real economy so that's step frost but there is a cost right made of interest rates charge the cost of the differential institutions so there's a balance between the pros and cons every time so at this moment it is important to encourage the bank lending to the private sector that's the first priority and so that's why we expand the Year lending programs and also the asset purchases that's the first line of defense in the future it depends on the crochet it depends on the year financial markets governments if things are going bad and if needed we could do more regarding the admittance remember that when the BOJ introduced the negative interest rate on the reserves new reserves incremental reserves coming in to the VA there's screams from the financial institutions that somehow you know they they lost the the slope of the yield curve that's my interpretation such triggered ycc later and but still they're very cautious a day they means the foremost remarks and very reluctant to accept this negative interest rate as policy tool am I wrong cozy yeah I'm sure I know that and because the mental state has to yeah probably annuity impact on the Constitution for sure but year lower yield curve has the huge positive impact on the economy through the stimulating the consumption housing Investment and year tax and so forth that is the important factor what we need is did to bring the economy back to normal level you know what the to the debt and have interest rate might be of the positive effect and at this conjuncture we need to probably liquidity more rather than the changing the interest rates we you know the keeping the low interest rate really good one but the it's more important for the low interest rate environment in the recovery phase rather than countries so you know the year changing the interest rate rate it's not a good time for now and now we can concentrate the corporate finance so how how possible well probable that this the creative crisis we think may turn into the solvency crisis sorry Catherine I don't know this is so great because I wanted to tell the audience taka Ito is is it's so nice to have him join the conversation I think these Central Bank gods wanted this to happen because to have him with us and not be a participant he could be ashamed so I'm just really glad to include you now as well so go ahead and ask the question you're going to ask I'm sorry I'm in the pokin we've had some rain and power surges out here so anyway it's great to see you so please continue talking on so the question I just asked is the probability of the liquidity crisis which we think it is turns into the solvency crisis just are you talking about financial terms or in real economy turn the other Konami's field over to know so financial and then back and then back again oh I'm very glad that we walked into this crisis with a relatively small a strong financial and banking system both globally and in the United States very glad because I think the losses that financial institutions are going to face six months from now are going to be very very sizable the good news is they have large capital cushions in addition if these bridging facilities particularly the fiscal bridging the transfer payments to households and small firms and at least some of the credit programs the credit lending programs can keep a floor underneath the real economy they're still going to be sadly it's J powers right it's heartbreaking there's going to be a huge amount of unemployment there's going to be a massive amount of defaults it's it's terrible and bankruptcies but if you can keep a floor under that so that it's here and you'll know something I know don't move your hands around on zoom' selection then then the banking system and the financial system has a chance to say fairly stable and and do its job effectively of providing credit and intermediating in the financial system that that's the baseline if it's a lot worse than that or we're very wrong or the virus is just incredibly persistent and and that's not something that any of us that I at least I'm quite all qualified to judge then it could be worse certainly and yeah I will treat that the we're pretty fortunate that you have a very resilient financial system I will capitalize and now banking system is the providing India credit thanks to this high level of the capital but I agree that there's a risk that if the economy is shut down for a long time more than we expected then the accredited program turnout could be solving the problem not it's a disasters and we need to stop that and so first we need to see the resiliency answers just this conjecture that's the important fact B was a it's actually conducted pop downs just a second ago in the financial system import our stress scenario is pretty much in line with the previous cover financial crisis which is pretty large negative shocks and we find that beer even after the wicked sharks like the global financial crisis Japanese penal system is the resilient although there's a huge diversity among different institutions some of you go Browns about some problems and stronger Browns believe okay but it's not approval on a potential crisis if we implement the year similar scenario it's like the era of national crisis if the Sharks much much bigger this time well an adventure crisis that might be a problematic for sure but we don't know for that but it crucial depends on the how chronovisor will be contained it okay different question from from the audience this is for about the BOJ very specifically besides unlimited bond buying should the BOJ be more aggressive in buying ETFs and more directly stake single global diversified Japanese conglomerates like Sony Panasonic Toyota stopping as a backstop by sending a message that the BOJ will act more aggressively on the equity side this could trigger an increase in investments versus savings amongst its citizens and attract foreign investors what do you think regarding dear idiot purchase stock processes we increase the amount of the purchase pace of the EDS in march and we have already increased the amount of sub cortices that's one answer the second one is that the wither the beauty issued by the individual stocks enough we purchase a EDS it's market stimulative package and not going into the individual stocks so that's not the ability job I guess it's matter of the other agencies if help is needed like the United States okay Trish the question um specifically to the US in fact because it seems to me so far you know becoming one of the hardest hit countries two-thirds of GDP is consumer spending in the United States well consumer spending come back as before after the reopening of the economy if not how much of it will come back in the fall of this year of course that person assuming that question that the reopening will be happening by fall but it's a question especially since people talk about changes in behavior people be reluctant to spend they'll save more etc I actually think that's that's quite possible and it's one of the reasons that I think the rug even if the reopening is relatively steady not not not not all or nothing that everything opens up at once I I think we've learned enough in the last few weeks to know that that seems pretty unlikely but if it is done slowly and carefully and it does indeed start sometime in the summer and go on into the fall I do think the recovery and consumer spending is going to be very very slow and steady and it's one reason that I am very dubious about a V but of course there the uncertainty about this virus and about how it's going particularly should there be second and third waves and how that will impact consumer spending and is it's 19 uncertainty we really don't know and while businesses and households may respond to policy impacts and to confidence effects in to the actions of central banks and Finance Ministry's viruses don't and that's a quote from a former colleague of mine they're not going to respond to to those confidence index they're going to do what they do and if that happens again it is quite possible that the path for consumer spending coming back may be even slower than it was certainly slower than any of us would like but there's a couple questions here about inflation and it cuz it makes me chuckle in a way because we know so many central banks than the developed world have been trying to boost inflation one of them is worried about monitor expanding and already starting from a position of excess liquidity so is this gonna cause global inflation another one very concerned about the long-term risk of hyperinflation and because of these all the government spending and all this money and liquidity being provided will that will that be what we see and I guess we can start with you Nakamura sama hear from you too as well Trish because you know the BOJ has been trying a long time and at the meeting this week it seems that governor Kuroda said you know basically he acknowledged that the 2% target in this environment now is a you know it's not something he's focused on it's not any part of his legacy women when if he steps down from the BOJ at some point well you know BOJ has actively engaging in monetary policy in order to bring the information back to the normal level for years it looks a long time and you know this at this juncture this corner buys two sharks provide the in freshmen or the fresh marry is a question or maybe initial trim I guess the ass I showing the a my slide the we think that the Eurasian might be muted and so there is a clearly downward pressure on the prices for the time being we see the similar situation when we have a big earthquake in Japan at the time that is also the huge surprise shock and but the press not move so much because the increase in expectation is well stable at the time so at this time it is important to make the in Christian expectation to be stable and to do that the year central bank should be more should be active to the stimulating economy and bring the back of inflation rate to the to the year target level in the longer term there's always argument that there is a possibility of very pressure on date because of the officio that is high and they send the bank balance rate is high and so forth but I haven't seen any symptoms of the such a risk engine yeah as you can see intended right now the important thing is that the central bank should act pretty much in line with the inflation targeting framework and the government should engage in the fiscal austerity so those type think two things are very important all of longer-term perspective in order to that the stop the hyper racial hyperinflation going on hold so Trish so I agree with Koji there been my personal view about the current situation is a certainly an aggregate supply shock but the drop in aggregate demand has been much much much bigger and will continue to be which means it's basically going to put downward pressure on inflation if anything but looking at the longer-term perspective one of the puzzles of the last ten years has been why the advanced economies who have provided all of this incredible liquidity and monetization have not been able to get their inflation rates up to their target levels Oh as quickly or as as often as they would like I'm afraid that I agree with Koji I don't think this is going to go away in the short run I'm guessing that that the downward pressure on prices will be on inflation will be will be bigger in the short run whether they come roaring back or not is a very interesting and big question particularly since nearly every economy who can afford it has any fiscal space and has the ability to borrow is going to need and want to do massive fiscal expansion over the course of the next year or so figuring out how and that's exactly what they should be doing let me be clear this is not the time to worry about fiscal deficits not right now but in a in a year and a half from now two years from now who knows when the right timing is but when things are back to a normal even keel how do you get your fiscal house back in order because if you don't I think that's the point at which the possibilities - even if it's still remote but the possibility of more inflation pressures well well could could arise okay just really critically because we gotta wrap it up very brief answers I'm just think this is on everybody's mind central bank independence what is the future is the jeopardized now as central bank's take on more and more steps are so aggressive or is there a way through this and we'll start with you Nakamoto salon imma finish with you Trisha keep your answers brief or I'm going to get in trouble well it's not about independence its security because it's a separate the enola wishing that we do along with the law and we have also be a framework of the agreement of the governments so I think the as long as the we can secure the our activity and play explain to the public and the public understands the situation I think there's a fish yes I think the checks and balances in the US are different but but equally valid one is that first of all this really close cooperation between Treasury and the Fed is only going to be there as long as the appropriations are there and as long as the equity cushion is there and after that it's what it's the feds decision about how to do these things that's not going to be there forever not only that the the reluctance of the politicians in the United States to have the Federal Reserve do these sorts of things it's very high so as I take it as a so that that makes me have some some confidence but it is true that in you know all-out fiscal monetary coordination all of the second world war it took quite a few years six to be precise till 1951 until the federal the federal record that established that the central bank was responsible for these two things so is it going to happen instantaneously I hope so because of the temporary nature of the structures created this time but the reality we'll see perhaps it will take a little longer okay well I want to thank both of our esteemed panelists koji Nakamoto Patricia Mansour Bank of Japan collab University of course professor monster formerly the Federal Reserve New York Fed that is and I want to also thank Taku Toshi Ito Columbia University professor who stepped in so Abele when my system just paused for a moment and thank all of you for joining us Japan society thank you for inviting me to be the moderator terrific event terrific questions raised answered by our panelists at a time when I think these are the kinds of things that are on everybody's mind and we look forward to doing this again so thank you for joining us today thank you thank you you