income situation. in the annual labor - management wage negotiations, movements toward wage increases have been broadening since 2014, reflecting corporate performance and supply - demand conditions in the labor market. looking bis central bankers ’ speeches ahead, as the observed inflation rate rises, medium - to long - term inflation expectations are also likely to follow an increasing trend and gradually converge to 2 percent – the price stability target. nevertheless, i believe that it is still necessary to pay close attention to how factors such as the decline in crude oil prices will affect firms ’ and consumers ’ outlook for prices. iii. conduct of monetary policy let me now turn to the bank ’ s monetary policy. the bank decided to introduce quantitative and qualitative monetary easing ( qqe ) with a negative interest rate at the monetary policy meeting ( mpm ) held in january 2016. let me look back on how the bank came to introduce it. about three years ago, at the mpm held in april 2013, the bank made a commitment to achieving the price stability target of 2 percent at the earliest possible time, and decided to introduce qqe as a necessary measure to underpin this commitment. the main transmission mechanism of qqe is stimulating firms ’ investment and households ’ consumption through lowering nominal interest rates across the entire yield curve by making large - scale purchases of japanese government bonds ( jgbs ) and showing the bank ’ s clear commitment toward achieving the price stability target of 2 percent by continuing with massive asset purchases. thereafter, the bank decided to expand qqe at the mpm held at the end of october 2014. in january 2016, it introduced qqe with a negative interest rate, which is designed to enable the bank to make full use of possible monetary easing measures in terms of the three dimensions of quantity, quality, and the interest rate, in which a negative interest rate is added to the existing options of qqe conducted to date. after the turn of 2016, there had been uncertainty over future developments in emerging and commodity - exporting economies, and financial markets had been volatile. reflecting such developments, there was an increasing risk that an improvement in the business confidence of japanese firms and conversion of the deflationary mindset might be delayed, and that the underlying trend in inflation – which had been rising steadily – might be negatively affected. based on such recognition, the bank decided to introduce qqe with a negative interest rate to preempt the manifestation of this risk and to maintain momentum toward achieving

dropped slightly against the u. s. dollar mainly due to the widening gap between the u. s. and japanese economic outlook. with regard to corporate finance, private banks are becoming more cautious in extending loans to firms with high credit risks while they continue to be more active in extending loans to blue - chip companies. the lending attitudes of financial institutions as perceived by firms are gradually becoming more severe. in corporate bonds and cp markets, the fund - raising conditions are generally favorable particularly for firms with high credit ratings as seen in a slight decline in cp issuance rates, but the issuing environment for those with low credit ratings continues to be severe on the whole. credit demand in the private sector continues to follow a downtrend mainly because firms are decreasing their business fixed investment while continuously reducing their debts. amid these developments, private banks ’ lending continues to decline at about 2 percent on a yearon - year basis. as for the amount outstanding of corporate bonds issued, the year - on - year growth rate has been slowing since the issuance of corporate bonds with low credit ratings is sluggish. the yearon - year growth rate of the amount outstanding of cp issued is declining, although the amount is still well above the previous year ’ s level. the year - on - year growth rate of monetary base has increased further. the year - on - year growth rate of money stock ( m2 + cds ) continues to be around three to four percent. funding costs for firms continue to be at extremely low levels on the whole, although market funding costs for some firms and the long - term prime lending rate are rising somewhat. overall, the recent financial environment remains extremely easy on the whole in terms of money market conditions and interest rate levels. however, the fund - raising conditions of firms with high credit risks, especially of small firms, are becoming severe as private banks and investors are becoming more cautious in taking credit risks against the background of a growing number of corporate bankruptcies. hence, the developments in the behavior of financial institutions and corporate financing need closer monitoring.