##fu, " bank of japan, june 2017. a reduction in fiscal deficit decreases the possibility that the bank of japan will have to assume such deficit. ministry of finance, japanese public finance fact sheet 2017, april 2017, 24. be dangerous make the claim that, even if the bank raises the interest rate on excess reserves, the interest rates on jgbs that it purchased in the past will remain low, and therefore the bank will suffer enormous losses. it is certainly possible that the bank could suffer losses because it will receive a low yield despite paying out a high yield. such proponents explain that, if the bank suffered losses, then confidence in the currency would be undermined, and this would lead to hyperinflation, the collapse of the yen, and a surge in interest rates. however, while yields on even jgbs at present are around 0 percent, they were 3 percent until about the middle of the 1990s. the reason is that, at that time, the real economic growth rate was high and prices were rising. if prices rise, interest rates will also rise eventually. this means that it will be possible to purchase higher yielding jgbs. of course, until that time, the bank will have to hold low yielding jgbs while paying high yields to banks in order to prevent an overheating of the economy. however, in the end, the central bank will always make a profit in the long run, since it buys high yielding jgbs using cash and current account deposits that carry almost no costs. thus, the bank will not make a loss in the long run that could pose a danger. in the first place, over the course of monetary easing in japan, the economy improved and the fiscal deficit to gdp ratio also improved, backed by an increase in tax revenues ; thus, focusing on the bank's deficits that will temporarily occur at the time of the exit is an argument that fails to see the forest for the trees. some are of the opinion that, because central banks in the united states and europe are heading for the exit, japan should follow suit. however, it makes perfect sense to me that japan's exit should come later than theirs. to begin with, although inflation rates in the united states and europe are below 2 percent, they are hovering at around 1. 5 percent. this differs from the situation in japan, where the rates do not reach even 1 percent. furthermore, japan introduced the quantitative easing policy - - which was

after the introduction of qqe in 2013, due to the improvements in the economy, the financial situation of borrowing firms equivalent disposable income is calculated by dividing household disposable income by the square root of the number of people in the household. it is believed to represent the standard of living per member of the family. the reason for using the square root instead of the number of people itself in the calculation is that there are costs of living shared among the members of the household, which tend to become lower per person as the number of people in the household grows larger. equivalent disposable income is thought to make it possible to compare per capita disposable income between households with different numbers of people in the household. bank of japan, flow of funds accounts ( 2nd quarter 2017 ; preliminary ), september 2017. improved, credit costs decreased, and banks'net income increased. 9 in other words, bank profits are affected by the situation of the economy as a whole, in addition to developments in interest rates. although operating profits from core business fell in fiscal 2015 and 2016, i think that this is partly due to the sluggishness of the economy that followed the consumption tax hike. it is true that banks'net profits have been declining since fiscal 2016, but i would like to emphasize that they had been improving prior to that. chart 6 financial institutions'operating profits from core business introduction of the zero end of the zero introduction interest rate policy interest rate policy of qe feb. 1999 aug. 2000 mar. 2001 trillion yen end of qe mar. 2006 introduction of qqe apr. 2013 % - 1 fy shinkin banks regional banks major banks jgb yields ( right scale ) note : non - consolidated base. operating profits from core business are calculated by subtracting general and administrative expenses from the sum of net interest income and net non - interest income. figures for " jgb yields " represent 10 - year jgb yields. source : bank of japan. net income is calculated by deducting credit costs, such as loan - loss provisions, from the sum of operating profits from core business and the profits and losses on sales of securities. other items such as extraordinary gains / losses are also added / deducted. furthermore, if bank profits depend on a rise in nominal interest rates, qqe is a policy that will lead to an increase in interest rates in the end. this is because interest rates also rise when prices rise