haruhiko kuroda : quantitative and qualitative monetary easing speech by mr haruhiko kuroda, governor of the bank of japan, at a meeting held by the yomiuri international economic society, tokyo, 12 april 2013. * * * introduction it is a great honor to be invited to this meeting hosted by the yomiuri international economic society today. this is my first speech as governor of the bank of japan. today, i would like to explain the “ quantitative and qualitative monetary easing ” that we decided to embark on last week. i. basic thinking when i was appointed as the governor, i had the following basic thinking in mind. the first is that we should do whatever is necessary to overcome deflation, which has been causing a deterioration in japan ’ s economy for nearly 15 years. the bank of japan has engaged in a wide range of monetary easing efforts – including the implementation of the zero interest rate policy, the quantitative easing policy, and comprehensive monetary easing. despite its cumulative efforts, there have been no easily derived concrete results, and i have felt strongly that we should make all - out efforts to utilize every possible resource bestowed upon the bank, rather than to adopt an incremental approach – or, put differently, to adopt gradualism. the second point is the importance of committing strongly and clearly that the bank is responsible for achieving the price stability target. at the monetary policy meeting held in january, the bank – on its own judgment – set the price stability target at 2 percent in terms of the year - on - year rate of change in the consumer price index ( cpi ) and made a groundbreaking commitment to achieve that target at the earliest possible time. regarding the time frame for achieving the target, looking at other economies, many central banks have been making efforts to achieve the price stability in the medium term, with a time horizon of about two years for the effects of monetary policy to permeate the economy. i have found it appropriate for japan ’ s economy as well to make a commitment with a time horizon of about two years. the third point is to convey the bank ’ s strong policy stance to markets and economic entities with clarity and intelligibility, thereby dramatically changing the expectations of market participants as well as firms and households. during the course of 15 years of deflation, the public ’ s behavior has been based on the assumption that prices would either decline or be unlikely to rise. it is necessary to eliminate deflationary

an inflation rate of 2 percent – the price stability target – as expected ( chart 7 ). when assessing price developments, it is important to bear in mind that monthly figures for the cpi tend to fluctuate and that trend inflationary pressure is determined by two factors : improvements in the output gap and rising inflation expectations. to assess trend inflation, it is necessary for the bank to carefully examine these two factors. as i mentioned, japan ’ s labor market has tightened, and firms ’ excess capacity has almost disappeared as capacity utilization has increased. as a result, the output gap has been improving moderately and recently reached around 0 percent ( chart 8 ). moreover, as i will explain later, medium - to long - term inflation expectations appear to be rising on the whole. the year - on - year rate of increase in the cpi is expected to accelerate moderately, along with increasing wages, against the backdrop of rising inflation expectations as well as improvements in the output gap, given that japan ’ s economy is expected to continue growing at a pace above its potential. specifically, the inflation rate is expected to be around 1¼ percent for some time, since upward pressure from energy - related goods, particularly petroleum products, will likely wane. subsequently, with the output gap remaining positive bis central bankers ’ speeches and medium - to long - term inflation expectations rising, the year - on - year rate of change in the cpi is expected to follow an uptrend again and reach about 2 percent around the middle of the current projection period from fiscal 2014 through 2016, that is, in or around fiscal 2015. looking at the median of the policy board members ’ forecasts in the interim assessment of the outlook report at the july mpm, projections for the year - on - year growth rate in the cpi ( excluding fresh food ) are plus 1. 3 percent for fiscal 2014, plus 1. 9 percent for fiscal 2015, and plus 2. 1 percent for fiscal 2016, after excluding the direct effects of the consumption tax hikes ( chart 5 ). ii. conduct of monetary policy a. what is qqe? for the remainder of my speech i would like to focus on several points concerning the bank ’ s conduct of monetary policy. the qqe policy the bank has been pursuing since april last year has two major pillars ( chart 9 ). the first pillar is a commitment to achieve the 2 percent price stability target as swiftly as possible. specifically, the bank clearly pledged that it would achieve the price