How to Address Tail Risks. Masaaki Shirakawa Governor of the Bank of Japan

Transcription

1 How to Address Tail Risks June 27, 211 Annual General Meeting 211 of the Foreign Bankers' Association in the Netherlands Masaaki Shirakawa Governor of the Bank of Japan

2 Slide 1 Frequency of occurrence Tail Events An extremely rare event such as the Great East Japan Earthquake "Tail event" An event that occurs with a 1 % probability Losses/profits 1

3 Slide 2 Frequency of occurrence Tail Risks Tail risks = Losses Probability Distribution 1 (shorter tail) Amount of losses with the same probability varies by the distribution Distribution 2 (longer tail) Tail risks Difficult to specify the shape of the tail of the distribution 15 Losses Profits Losses/profits 1 % probability losses in the distribution 2 1 % probability losses in the distribution 1 Tail event 2

4 Slide 3 Frequencies of Natural Disasters times 5% quantile 1% quantile Irpinia Earthquake (Italy, 198) Great East Japan Earthquake (211) 2 Great Hanshin Earthquake (Japan, 1995) Santiago Earthquake (Chile, 1985) Izmit Earthquake (Turkey, 1999) Ratio of estimated damage costs to nominal GDP, % Notes: 1. The damage cost of the Great East Japan Earthquake is estimated by the Cabinet Office to be 25 trillion yen. It is converted into U.S. dollars at the exchange rate at the end of March 211 ($1 = yen). 2. Damage costs include the damage to infrastructure, agricultural crops, and buildings. Source: Center for Research on the Epidemiology of Disasters, University Catholique de Louvain, "Emergency Events Database (EM-DAT)." 3

5 Slide 4 Distribution of Quarterly Changes in Japan's Real GDP 25 % /Q1 28/Q4 211/Q Quarter-on-quarter change, % Note: Data from 1955/Q3 to 211/Q1 are used. 4

6 Slide 5 Distribution of Monthly Changes in Japan's Production 18 % Mar. 211 From Nov. 28 to Feb Change from the previous month, % Note: Data from February 1978 to April 211 are used. 5

7 Slide 6 Distribution of Monthly Changes in Japan's Exports % Nov Jan. 29 Dec. 28 Mar. and Apr Note: Data from February 1969 to April 211 are used. Change from the previous month, % 6

8 Slide 7 Damage to Capital Stock Amount of damage to capital stock Ratio to nominal GDP Ratio to total capital stock Great East Japan Earthquake (211)* trillion yen 3-5% % * Figures do not include the effects of the nuclear accident. Great Kanto Earthquake (1923) 4.6 billion yen 29% 9% World War II ( ) 64.3 billion yen 86% 25% Great Hanshin Earthquake (1995) 9.9 trillion yen 2%.9% Sources: Cabinet Office; Hyogo Prefecture; Bank of Japan, etc. 7

9 Slide 8 Japan's Production and Real Exports 12 s.a., 25= Production METI projection 14 s.a., 25= Real Exports Sources: Ministry of Economy, Trade and Industry, "Indices of Industrial Production"; Bank of Japan, "Real Exports and Real Imports." 8

10 Slide 9 Number of Foreign Visitors to Japan thousand people Visitors for business or other purposes (left scale) Tourists (left scale) % 8 6 Year-on-year change (right scale) Note: Figures of April and May 211 are estimates of the Japan National Tourism Organization, and a breakdown of the figures by purpose of visit is not yet available. Source: Japan National Tourism Organization, "Visitor Arrivals & Japanese Overseas Travelers." 9

11 Slide Japan's Exports of Automobile Parts Figures for April compared with the average of January and February 211, % Indonesia (95.6%) Philippines (95.3%) China (16.5%) Malaysia (59.5%) Taiwan (83.2%) Hong Kong (.%) European Union (6.7%) South Korea (.%) United States (37.2%) Thailand (99.4%) -35 Note: The parenthesized figure is the share of Japanese automakers in individual economies' automobile production.

12 Slide 11 Nominal GDP, Land Size, and Population in the Prefectures Most Affected by the Great East Japan Earthquake Share, % Ibaraki Prefecture Miyagi Prefecture Fukushima Prefecture Iwate Prefecture Total Nominal GDP Land size Population Notes: 1. Figures for nominal GDP are as of fiscal 28. Those for land size and population are as of fiscal Land size refers to land area as a percentage of Japan's overall size. Sources: Ministry of Internal Affairs and Communications, "Statistical Handbook of Japan 2," "Population Census"; Cabinet Office, "Kenmin Keizai Keisan Nenpo (Annual Report on Prefectural Accounts)." 11