rate to 0. 15 percent and the official discount rate to 0. 25 percent. lombard - type lending facility and the new role of the official discount rate among these policy measures, the lombard - type lending facility is new to japan. officially, it has a name of “ supplementary lending facility. ” under the existing framework of liquidity provision, the bank of japan selects its counter - parties and decides on the timing as well as amount of lending. in contrast, the lombard - type lending facility entitles financial institutions to borrow at the bank of japan ’ s discount window the amount that they want at any time they wish, as long as collateral is properly set against the borrowing and the borrower meets the conditions pre - specified with respect to eligibility of collateral and other technical aspects. from a viewpoint of financial institutions, this is a means of funding available any time. the most important function that this supplementary lending facility performs is to stabilize interest rates in the market. under usual circumstances, the overnight call rate fluctuates below the official discount rate because the former is the rate of which the bank of japan sets such a target level. when end - of - fiscal year pressures mount or a shock arises in the market, e. g., steep declines in stock prices or rumors of a large bankruptcy, interest rates tend to go up in the market. even in that case, overnight market rates will be kept below the official discount rate because financial institutions are able to borrow at the bank of japan ’ s discount window at their discretion. moreover, because financial institutions are freer from anxiety over funding capabilities, this will have a stabilizing effect on not only the overnight call rate but also other short - term interest rates across the board. this effect has been strengthened further by two reductions in the official discount rate amounting to 0. 25 percentage points in february 2001. now let me say a few words about the roles that the official discount rate plays. in the past, the bank ’ s decision as to the official discount rate was a basic tool of monetary policy. therefore, change in that rate had an announcement effect since it embodied change in the basic stance of monetary policy. in 1994, however, deregulation of interest rates was complete, and the institutional linkage between the official discount rate and bank deposit rates disappeared. in 1996, the bank of japan made it clear that the bank would no longer use the discount window lending, to which the official discount rate was applied, as a means

figures implied by inflation - indexed bonds that are traded in markets, inflation expectations seem to have increased by about 0. 5 percentage point compared to the period before qqe. the degree of decline in real interest rates seems to have been slightly less than 1 percentage point, as calculated by adding the degree of the decline in nominal long - term yields and that of the increase in inflation expectations. the changes in financial markets, economic activity, and prices after the introduction of qqe are broadly consistent with the roughly 1 percentage point decline in real interest rates. bis central bankers ’ speeches financial markets responded to the introduction of qqe relatively swiftly. stock prices have increased substantially and the excessive appreciation of the yen before the introduction has been corrected. the pace of increase in lending has been moderately accelerating and recently reached around 2. 5 percent on a year - on - year basis. in addition to the decline in real interest rates, such developments have made financial conditions even more accommodative. with such accommodative financial conditions, a virtuous cycle from income to spending has been operating in both the corporate and household sectors, and japan ’ s economy has seen a significant turnaround. i am aware that some firms have had difficulties in passing increased costs, including wages, on to sales prices smoothly ; thus, some may not share the sentiment that the economic condition has improved. however, the positive feedback between higher profits / wages and higher inflation – where higher corporate profits feed through into higher wages, leading to higher sales prices, which in turn results in even higher profits / wages – is now in place. this is the opposite of the negative feedback that was observed in the deflationary period. to this end, the temperature of the economy is gradually rising. outlook for prices and the bank ’ s monetary policy going forward reflecting this turnaround in the economy, the underlying trend in inflation has also steadily improved. the year - on - year rate of change in the cpi ( all items less fresh food ), which was about minus 0. 5 percent before the introduction of qqe, improved to 1. 5 percent last april excluding the direct effects of the consumption tax hike ( chart 11 ). thereafter, the rate of increase in the cpi has slowed, recently to about 0 percent, against the background of the substantial decline in crude oil prices since summer 2014 and somewhat weak demand following the consumption tax hike. looking forward, due to the effects of the decline in energy prices,