Hiroshi Nakaso: Toward a "Comprehensive Assessment" of the monetary easing
Central bank: boj | Type: speech | Date: 2016-09-08

## Hiroshi Nakaso: Toward a 'Comprehensive Assessment' of the monetary easingSpeech by Mr Hiroshi Nakaso, Deputy Governor of the Bank of Japan, at a meeting hosted by the American Chamber of Commerce in Japan (ACCJ), Tokyo, 8 September 2016.*

*

*Accompanying charts can be found at the end of the speech.

## IntroductionIt is my great pleasure to have the opportunity today to speak at a business luncheon hosted by the American Chamber of Commerce in Japan.All eyes seem to be on a comprehensive assessment to be conducted at the Bank of Japan's September 2016 Monetary Policy Meeting (MPM).

This is, of course, the main topic of my speech today.

Before addressing that issue, however, I would like to touch on responses taken by central banks after the United Kingdom's vote to leave the European Union (EU) -the socalled Brexit - and decisions made at the Bank's MPM held in July 2016.

For me, these topics are not appetizers served before the main dishes.

I believe that they are important policies on their own.

## Responses to BrexitOn June 23, 2016, contrary to general consensus, a majority of voters in the United Kingdom supported leaving the EU, and this led to global financial markets destabilizing, manifested in such developments as the rapid depreciation of the pound sterling.As Japan's markets were the first to be exposed to the unfolding results of the referendum, they reacted violently.

The yen's exchange rate appreciated rapidly and the stock prices fell sharply.

The

authorities

around

the

world,

including

those

in

the

G7

countries,

responded quickly and effectively.

The G7 central banks expressed their intention to ensure adequate liquidity

and

support

the

functioning

of

markets.

In

the

Japanese

context,

we

judged

it necessary to ensure accessibility of globally operating Japanese firms and financial institutions to funding liquidity in foreign currencies, in particular to U.S. dollar funding liquidity, and to that end, to reinforce the backstop facilities that had been installed during the Global Financial Crisis.

## Enhancement of monetary easing in JulyIn light of heightened uncertainties surrounding overseas economies, such as those stemming from the United Kingdom's vote to leave the EU, the Bank decided at the July 2016 MPM to enhance monetary easing.

Specifically, measures taken by the Bank are threefold (Chart 1).The first is an increase in the Bank's purchases of exchange-traded funds (ETFs).

Specifically, the amount of purchases will be almost doubled from an annual pace of about 3.3 trillion yen to an annual pace of about 6 trillion yen.

This measure aims at preventing the deterioration in business confidence and consumer sentiment and promoting proactive risk-taking.

I think that this amount is significantly large given the fact that foreign investors' cumulative net purchases of stocks amounted to about 16 trillion yen for the first three years of Abenomics (Chart 2).The second is a doubling of the size of the Bank's lending program in U.S. dollars to support economic growth (the Special Rules for the U.S. Dollar Lending Arrangement to Enhance the Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth Conducted through the Loan Support Program).

Under this lending program, the Bank will provide back-to-back financing in U.S. dollars to financial institutions by using its own U.S. dollar

reserve

funds

in

cases

where

these

financial

institutions

make

foreign

currency-BIS central bankers' speechesdenominated investments and loans to firms, which contributes to the strengthening of the foundations for economic growth.

The duration of the Bank's lending can be up to 4 years through rollovers.

The loans under the program enable firms to receive stable funding in U.S. dollars

over

the

long

term,

and

the

program

has

been

actively

used

for

funding

of

firms, including local ones through regional banks.

The size of the program was doubled and raised to 24 billion U.S. dollars.The third is an expansion in the amount of collateral that can be pledged under the Bank's U.S. dollar funds-supplying operations.

The Bank has been conducting U.S. dollar funds-supplying operations regularly with U.S. dollar funds raised through a network of bilateral swap lines among central banks.

With this operation, financial institutions can raise U.S. dollar funds on a full allotment basis.

Nevertheless, there is a condition that the amount of funds to be provided is up to that of eligible collateral pledged by each institution because in principle, transactions with

the

Bank

should

be

backed

by

collateral.

Under

the

current

monetary

policy,

many financial

institutions

have

sold

Japanese

government

securities

(JGSs)

to

the

Bank

while holding a substantial amount of current account balances with it.

Under these circumstances, the

Bank

decided

to

establish

a

new

securities

lending

facility

in

which

it

lends

JGSs

to counterparties of these operations against their current account balances with the Bank.

This enables the financial institutions to raise U.S. dollar funds against JGSs borrowed from the Bank.

The new facility is designed to provide for a rainy day by precluding concern about the lack of collateral they hold.

In this way, it is expected to further enhance effectiveness of the U.S. dollar funds-supplying operations as a backstop.These

measures,

despite

their

technical

nature,

can

contribute

meaningfully

to

ensuring access

to

funding

liquidity

in

foreign

currencies

and

thus

to

economic

stability.

I

want

to reiterate that such a technocratic endeavor is no less important than such big policy moves as the negative interest rate or the massive purchases of Japanese government bonds (JGBs), which tend to attract more attention.

## I.

Background of comprehensive assessmentI would now like to turn to the broad framework of monetary policy.

Against the backdrop of heightened uncertainty over the outlook for prices, with a view to achieving the price stability target of 2 percent at the earliest possible time, the Bank decided to conduct at the next MPM, to be held in late September, a comprehensive assessment of the developments in economic activity

and

prices,

as

well

as

of

the

policy

effects,

over

the

past

three

years

since

the introduction of quantitative and qualitative monetary easing (QQE).The background is twofold.

First, since the introduction of QQE, Japan's economic activity and prices have improved substantially, and Japan's economy is no longer in deflation.

However, the price stability target of 2 percent has not been achieved yet, despite the unprecedented large-scale monetary easing.

The Bank will analyze how monetary policy has functioned during these years and what factors have possibly hampered achievement of the 2 percent target.

Second, under 'QQE with a Negative Interest Rate,' which was introduced more than half a year ago, various interest rates, including JGB yields as well as rates for lending and corporate bonds, have declined substantially; thus, the policy already has exerted remarkable effects.

At the

same

time,

however,

it

has

had

an

impact

on

financial

markets'

liquidity

and

financial institutions' profits.

The Bank will also assess the effects and impact of this policy.

## II.

Mechanism of QQE

## Natural rate of interest and real interest rateRegarding the first point, I would like to start with the basics of the monetary policy transmission mechanism.

In fact, the main transmission mechanism of monetary policy, be it conventional or unconventional, is the same.

That is, real interest rate effects; in other words, driving the real interest rate higher or lower than the 'natural rate of interest,' which is the level of the realBIS central bankers' speechesinterest rate neutral to economic activity and prices.

The bigger the difference in these rates, the more effective the monetary easing or tightening will be.The potential growth rate and expected growth rate are considered proxies for the 'natural rate of interest.' As Japan has continued to struggle with a trend decline in the potential growth rate since the bubble burst, the Bank has lowered its policy rate to ensure the monetary easing effects (Chart 3).

In 1999, it introduced the zero interest rate policy.

Starting in 2001, the Bank conducted

unconventional

monetary

policy

measures

such

as

quantitative

easing

and Comprehensive

Monetary

Easing.

Nevertheless,

the

monetary

easing

provided

by

those policies proved insufficient to overcome deflation.

## Mechanism of QQEBased on this experience, in 2013, the Bank set the price stability target of 2 percent, and with a view to achieving the target at the earliest possible time, it launched QQE.

The transmission mechanisms of QQE are also expected to operate through real interest rate effects.

QQE aims to raise inflation expectations through the Bank's strong and clear commitment to achieving the price stability target of 2 percent and through large-scale monetary easing that underpins the commitment.

At the same time, the Bank exerts downward pressure on nominal interest rates across the entire yield curve through purchases of JGBs.

The compound effects through these channels compress real interest rates.

This decline in real interest rates boosts firms' and households' economic activity, which in turn leads to higher inflation rates, supported by higher

inflation

expectation.

It

was

assumed

that,

as

people

actually

experience

inflation, inflation expectations correspondingly would rise further (Chart 4).

This last point is called an 'adaptive formation mechanism' of inflation expectations, and it is a key concept of what I will talk about later.The innovative quality that might stand out in comparison with measures previously taken by the

Bank

of

Japan

and other

central

banks

is

that

QQE focuses

on

inflation

expectations.

Specifically, based on the Fisher Equation, which states that the nominal interest rate is equal to the sum of inflation expectations and the real interest rate, QQE aims to lower real interest rates by raising inflation expectations while compressing nominal interest rates.

## Economic activity and prices under QQEThis mechanism has worked and produced intended effects.

QQE brought about a decline in the real interest rate by raising inflation expectations and lowering the nominal interest rate.

As I mentioned earlier, the 'natural rate of interest' has been on a trend decline.

Despite that, the level of the real interest rate has been pushed down significantly lower than the 'natural rate of interest' and the financial conditions have improved.

Specifically, a moderate increase in lending coupled with a decline in interest rates, a rise in stock prices, and depreciation of the yen have been observed, and these have boosted economic activity.

As a result, regarding economic activity, corporate profits marked a record high level and the unemployment rate, released last week, has declined to a remarkably low level of 3.0 percent.

As for wages, the annual labor-management wage negotiations in 2014 resulted in base pay rises for the first time in two decades; base pay rises have continued for three consecutive years since then.

Looking

at

the

economy

as

a

whole,

the

output

gap

has

improved

close

to

the

long-term average of 0 percent.

On the inflation front, on a basis excluding fresh food and energy, the year-on-year rate of change in the CPI, which had been around minus 0.5 percent before the introduction of QQE, turned positive, and thereafter has remained in positive territory for two years

and

ten

months

(Chart

5).

This

is

the

first

time

since

the

late

1990s,

when

Japan's economy fell into deflation, that the CPI inflation rate has remained in positive territory over a protracted period.

I think Japan's economy is no longer in deflation, which is commonly defined as a situation where prices decline on a sustained basis.

## Reasons for missing 2 percent price stability targetHowever, it is true that the price stability target of 2 percent has not been achieved.

This also has to do with developments in inflation expectations, which is a key factor for real interest rate effects to operate.

Looking back, the mechanism worked as expected or better than expected over the first year or so from the introduction of QQE.

Thereafter, however, exogenous factors emerged

such

as

a

decline

in

crude

oil

prices

and

weakness

in

demand

following

the consumption

tax

hike

from

the

beginning

of

fiscal

2014.

This

was

compounded

by

the slowdown in emerging economies from summer 2015 that accompanied volatile developments in global financial markets.

As a result, the observed inflation rate has declined, and inflation expectations, which are formed in an adaptive manner, stalled.

This seems to be the main factor that hampers achieving the price stability target of 2 percent (Chart 6).It is widely accepted that people's inflation expectations are formed by two factors: a 'forwardlooking formation mechanism' and an 'adaptive formation mechanism.' In Japan, the effects of

the

'adaptive

formation

mechanism'

seem

to

have

dominated.

This

seems

to

be

partly because

the

price

stability

target

has

been

missed

under

prolonged

deflation.

In

addition, during

wage

negotiations

in

Japan,

such

as

the

so-called

spring

offensive

or shunto in Japanese, wages are decided on a basis of the actual price developments in the previous fiscal year.

This may have been one of the factors behind the 'adaptive formation mechanism.' The Bank, by continuing with QQE, has been trying to enhance the 'forward-looking formation mechanism' and thereby to raise people's inflation expectations and anchor them to the price stability

target

of

2

percent.

As

a

result,

perhaps

we

have

managed

to

deanchor

the deflationary expectation that the prices would never rise.

But inflation expectations are still in transition to be reanchored at 2 percent.Looking ahead, as the observed inflation rate is expected to revert to a gradual rising trend, inflation

expectations

will

be

pushed

up

by

the

'adaptive

formation

mechanism.'

However, given that the observed inflation rate is likely to hover at slightly negative or about 0 percent for the time being, uncertainty persists about this point.

For this reason, I think it is all the more important for the Bank to firmly maintain its commitment to achieving the price stability target of 2 percent at the earliest possible time from the viewpoint of enhancing the 'forward-looking formation mechanism.' The comprehensive assessment is conducted with the aim of achieving the 2 percent target at the earliest possible time.

To avoid any possible misunderstanding, this was

explicitly

referred

to

in

the

statement

released

after

the

MPM

in

July

2016.

At

the forthcoming MPM, we will discuss what needs to be done to achieve the 2 percent target at the earliest possible time.

Means toward reducing the level of monetary policy accommodation will not be on the agenda.

## III.

Effects and impact of 'QQE with a negative interest rate'

## Issues of the comprehensive assessmentLet me now move on to the topic of the negative interest rate policy.In terms of the transmission mechanism of policy effects, 'QQE with a Negative Interest Rate' is an extension of the aforementioned policies.

Namely, the Bank considers real interest rate effects as the basic mechanism.

Against the backdrop of weak inflation expectations that had started to descend further, the Bank decided to keep real interest rates lower by reducing the nominal

interest

rates

beyond

the

zero

bound.

By

applying

the

negative

interest

rate

to

a portion of financial institutions' current account balances with the Bank, in combination with its JGB purchases, the Bank intended to further compress interest rates on JGBs across the entire yield

curve.

This

was

expected to

affect

various interest rates,

including those for

lending, corporate bonds, and CP, spreading the effects of a decline in the real interest rate to economic activity and prices.

On the other hand, from the inception of the negative interest rate policy, the single most important issue has been that the policy should avoid having an excessively negative impact on financial institutions'

profits,

thus

impairing

the

financial

intermediation.Based on the experience of the past six months, the Bank will also assess the effects and impact of this policy.

This will be the second pillar in our comprehensive assessment.

## What we learned over the last six monthsIn

my

opinion,

there

are

six

points

we

have

learned

over

the

last

six

months

since

the introduction of 'QQE with a Negative Interest Rate.' Let me elaborate.First, a combination of the negative interest rate policy and JGB purchases proved extremely powerful in exerting downward pressure across the entire yield curve.

This seems to have operated through the mechanism in which (a) the negative interest rate applied to financial institutions'

current account balances with the Bank has resulted in a decline in short-term interest

rates,

and

(b)

financial

institutions

have

been

discouraged

to

hold

current

account balances through JGB sales, and this, together with a decline in risk premiums caused by JGB purchases, has lowered long-term interest rates.

Moreover, the so-called search for positive yield

by

investors

has

boosted

the

demand

for

assets

with

positive

yields,

substantially lowering yields on super-long-term JGBs.

Such mechanism has exerted downward pressure and flattened the yield curve, particularly toward the longer end.

This first point has proven the effectiveness of 'QQE with a Negative Interest Rate' as a monetary policy tool (Chart 7).Second, some were concerned that lower risk-free rates, or JGB yields, might not lead to a decline in banks' lending rates or interest rates on corporate bonds and CP, as room is limited for a decline in rates on deposits, the main source of funding for financial institutions.

I also considered that such concern deserves attention, but banks' lending rates, as well as interest rates for corporate bonds and CP, have fallen significantly thus far, each marking historical lows (Chart 8).Third, new developments relating to corporate finance have emerged recently; for example, the issuance of corporate bonds with a maturity of over ten years and firms' borrowings through subordinated loans have increased.

Super-long-term funding had been observed mainly in infrastructure

firms

such

as

those

related

to

electricity

and

transportation,

but

now

is increasingly shared by a wider range of industries (Chart 9).Fourth,

according

to

the

results

of

surveys

such

as

the

Short-Term

Economic

Survey

of Enterprises in Japan ( Tankan ) and the Senior Loan Officer Opinion Survey on Bank Lending Practices

at

Large

Japanese

Banks (often

dubbed

the Loan Survey ),

financial

institutions' lending attitudes have remained proactive.

Thus far, we have seen little evidence that the profit squeeze caused by the negative interest rate is adversely affecting their intermediary functions (Chart 10).Fifth, however, the flipside of such positive developments is the growing pressure on financial institutions' profits.

This can be seen from the larger fall in lending rates relative to a marginal decline in rates on deposits.

For Japan, the impact of the negative interest rate policy on the profits of financial institutions tends to be relatively large.

This is due to such factors as the amount outstanding of deposits far exceeding that of lending, and the interest margin already being extremely small following prolonged competition among financial institutions.

Given that profitability affects the soundness of financial institutions in a cumulative manner, we are fully aware of the fact that the impact can vary depending on the duration of the policy.

The view that the Bank might disregard the intermediary function performed by the financial sector is totally unfounded.

In fact, ever since our homegrown financial crisis in the 1990s, we have committed ourselves to maintaining financial system stability, which is a mandate given to us under the Bank of Japan Act.

Besides, the banking system is the key transmission channel for monetary policy.Sixth, as long-term and super-long-term rates have declined significantly, the rates of return on investments of insurance and pension products have declined, the sales of some savingtype products are suspended, and the net present value of retirement benefit obligations has increased.

Although direct impacts of these developments on the entire economy may not be substantial,

we

should

take

account

of

the

possibility

that

such

developments

can

affectpeople's confidence by causing concerns over the sustainability of the financial function in a broad sense, thereby negatively affecting economic activity.

## Thinking on the monetary policy management'QQE with a Negative Interest Rate' must be pursued as the most appropriate macroeconomic policy, by striking the right balance between the powerful policy effects described in the first four points I mentioned and the possible adverse effects on financial intermediation that I listed as the fifth and sixth points.

There is usually a trade-off between these two aspects, but the way we balance them must be dynamic.

For example, a static and uniform judgment that rules out any further cuts in the negative interest rate in view of financial institutions' profits would not

be

the

right

approach.

Depending

on

the

situations

for

economic

activity,

prices,

and financial conditions, further measures may still be deemed necessary after weighing policy effects against the cost on financial intermediation.

Through numerous discussions I have had with the leaders of financial institutions, I think I fully recognize the effects of the large-scale monetary policy on financial institutions and financial markets, and the likely impacts if the policy is to continue.

Based on this recognition, we will take measures that we judge necessary for Japan's economy.It is from this standpoint that I will participate in discussions of the comprehensive assessment at

the

next

MPM.

Based on a candid assessment, we will decide whether or not it will be necessary to make adjustments to the current policy framework, and if judged necessary, in what way it should be adjusted.

## Closing remarksLastly,

let

me

talk

about

the

relationship

between

the

Bank's

monetary

policy

and

the government's fiscal management and a growth strategy.The

first

relationship

is

that

with

the

government's

fiscal

management.

Usually,

when

the government

increases

fiscal

expenditures

by

issuing

government

bonds,

interest

rates

on government bonds will rise, which discourages private-sector investment.

This effect is called 'crowding out.' In this regard, in a 'policy mix' where the central bank pursues monetary easing at the same time, the rise in interest rates will be contained, thereby preventing 'crowding out' effects.

In the current Japanese context, this is exactly what is taking place.

Market interest rates in Japan have been in negative territory across a wide range of maturities due to the effects

of

the

Bank's

'QQE

with

a

Negative

Interest

Rate.'

In

this

situation,

the

economic stimulus

of

the

government's

fiscal

expenditure,

coupled

with

the

monetary

expansion,

is bound to prove very powerful due to the synergy effects.

This type of powerful 'policy mix' has been in place in Japan over the last three years and is likely to be reinforced further with the new large-scale fiscal 'stimulus package' in combination with 'QQE with a Negative Interest Rate.'The second relationship is that with a growth strategy.

As I said earlier, it is important that the Bank lowers the real interest rate while at the same time the government raises the natural rate of interest by promoting a growth strategy.

In this regard, there should be an emphasis on 'at the same time.' Structural reforms raise potential growth and reduce uncertainty about the future, so that firms and households spend more today in anticipation of higher profits and incomes in the future, thus raising current demand.

On the other hand, demand stimulus from monetary easing raises potential output through an increase in the capital stock as well as labor input.

Thus, I believe monetary policy to overcome deflation and supply-side reforms to raise the growth potential must be pursued in tandem, or 'at the same time,' to bring Japan's economy back on track toward sustained growth.

The Bank should continue with the monetary easing that successfully reshaped Japan's economy such that it may be described as no longer being

in

deflation,

move

further

to

terminate

deflation,

and

achieve

the

2

percent

target.

Meanwhile, I think that it is worth noting that the government's recent economic measures focus on 'investment for the future.'It has been thirty-eight years since I joined the Bank of Japan.

During this period, the economic and financial environment surrounding Japan has changed dramatically and the policy agenda for the central bank shifted accordingly.

As a freshman, I could hardly imagine that this central bank traditionally renowned as an inflation fighter was going to be engaged in such a difficult struggle

to

overcome

deflation.

Such

changes

never

lose

steam.

More

recently,

after

the collapse of Lehman Brothers, active discussions have taken place around the world about policy responses to the slower growth trend and the framework of the monetary policy in such a situation, ignited by Larry Summers' Secular Stagnation Hypothesis.

I already expressed my opinion

in

New

York

earlier

this

year,

so

I

will

not

repeat

this

today.

However,

I

have

an impression that some topics that formerly had been confined to academic circles are today openly discussed as practical policy challenges that need to be addressed from a medium- to long-term perspective.

I really feel this when attending international meetings and conferences.

The

answers

vary

from

country

to

country,

and

they

are

not

as

straightforward

as

those provided in textbooks.

For policy makers around the world, I sense that this has become a common

challenge

that

underlies

contemporary

policy

discussions

and

practices.

I

am reminded that, in order for policy makers at central banks and governments to appropriately keep abreast of the speed and dynamism with which the environment changes, they should not adhere simply to past common sense.

Recently, I often think that we central bankers must have the courage to evolve with the times and adapt to the environment while cherishing the central bank's DNA; that is, 'the policy actions based on theory and research.' This last point is

somewhat

superfluous

and

clearly

outside

the

scope

of

the

upcoming

comprehensive assessment, and I would like to finish my speech by reminding you that this is just my thought.Thank you for your attention.

## Enhancement of Monetary Easing (July 2016)Against the backdrop of the United Kingdom's vote to leave the European Union and the slowdown in emerging economies, volatile developments have continued in the global financial markets.The Bank will support proactive economic activities by preventing a deterioration in business confidence and consumer sentiment as well as ensuring smooth funding in foreign currencies by Japanese firms and financial institutions.

## Policy measures decided at the July 28-29 Monetary Policy Meeting1.

The Bank will purchase ETFs so that their amount outstanding will increase at an annual pace of about 6 trillion yen (almost double the previous pace of about 3.3 trillion yen)In order to ensure smooth funding in foreign currencies2.

For firms: Double the size of the Bank's lending program to support growth to 24 billion USD3.

For financial institutions (FIs): Establish a new securities lending facility in which the Bank lends JGSs to FIs against their current account balances with the Bank.

These JGSs can then be pledged as collateral for using the U.S. Dollar Funds-Supplying Operations3. — In effect, FIs are allowed to pledge cash collateral for using the USD Funds-Supplying OperationsChart 2

## Bank of Japan's ETF Purchases| Net Purchases of Japanese Equities (A negative figure indicates net sales)

| Net Purchases of Japanese Equities (A negative figure indicates net sales)

| Net Purchases of Japanese Equities (A negative figure indicates net sales)

| Net Purchases of Japanese Equities (A negative figure indicates net sales)

||------------------------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------||

| Financial Institutions

|

|

|Note:Sources: Tokyo Stock Exchange; Bank of Japan.Net purchases of Japanese equities cover stocks listed on the first and second sections of the Tokyo Stock Exchange and the Nagoya Stock

## Real Interest Rate and Potential Growth RateFY- Notes: 1.

Figures for the real interest rate are calculated by subtracting the year-on-year rate of change in the CPI (all items less food and energy) from the yield on 10-year JGBs.- Sources: Ministry of Intemal A ffairs and Commamications; Bloomberg: Cabinet Office: Bank of Japan; Ministry of Health, Labour and Welfare; Ministry of Economy, Trade and Industry; Research Institute of Economy, Trade and Industry.2.

The potential growth statistics Department, Bank of Japan.Chart 4

## Transmission Mechanism of QQE

## Consumer PricesNotes:1.

Figures for the CPI (all items less fresh food and energy) are calculated by the Research and Statistics Department, Bank of Japan.2.ofSource:MinistryFigures fortheCPIare adjustedto excludethe estimatedeffects changesin theconsumption taxrate.ofIntemalAffairs andCommunications.Chart 6

## Inflation Expectations

## Changes in JGB Yield Curve

## since the Introduction of the Negative Interest Rate PolicyChart 8

## Bank Lending Rates and Yields on Corporate Bonds and CPNotes: 1.

Figures for bank lending rates are average contract interest rates on new loans and discounts.2.

Figures for the issuance rates on corporate bonds are the averages for domestically issued bonds classified based on the highest ratings among those from Moody's, S&P, R&I, and JCR. 6-month backward moving average.

Bonds issued by banks and securities3.

Figures for issuance rates on CP are monthly averages of CP with a maturity of three months.

Figures for March 2016 are averages of weekly data up to March 18.Sources: Japan Securities Depository Center; Capital Eye; I-N Information Systems; Bloomberg; Bank of Japan.8

## Corporate FinanceVolume of Super-Long-Term Corporate Bond Issuance (Over 10 Years of Maturity)

## Selected Examples of Super-Long-Term Corporate Bond Issuance| Issuer's Sector

| Dates when bond [issuance condtions

| = | MY

| Coupon

| Issuance |

Volme

||-------------------|---------------------------------------|----------|----------|---------------------||

| 2016/5727

|

|

|

||

| 2016225

|

|

|

||

| 2016219

|

|

|

|Note: Volume of super-long-term corporate bond issuance excludes that of bonds for which first call dates are within 10 years from the issuance dates and that of bonds issued by banks and securities companies.Source: I-N Information Systems.Chart 10

## Financial ConditionsLending Attitude of Financial Institutions as Perceived by Firms (Tankan)Lending Policies of Large Banks (Senior Loan Officer Opinion Survey on Bank Lending Practices at Large Japanese Banks)Notes:1.2.

DI for credit standards is calculated as follows.Data fromtheTankan arebased onall industries.- DI= ( percentage of respondents selecting "eased considerably" + percentage of respondents selecting "eased somewhat" x 0.5 )~(percentage+percentagexSource: Bank of Japan.of respondentsselecting"tightened considerably”of respondentsselecting"tightened somewhat”0.5)10