states in recent years, inflation rates in both countries did not rise ( slide 3 ). however, it is crucial for a central bank to have the capacity to take necessary action promptly when an increase in interest rates is required due to changes in economic conditions. if market participants and the public perceive that the central bank is unable to take prompt action “ for some reasons ” when needed, rampant inflation may follow because the amount of money is extremely large. “ some reasons ” include these. one would oppose an increase in interest rates on the grounds of concern about capital losses of government securities held by private financial institutions or concern about an increase in interest payments on government securities. although those arguments do exist at any time, the arguments tend to be heated more when the outstanding balance of government securities is larger and the period of low interest rates continues longer. confidence in a central bank is formed in a complicated manner, and each country designs institutional arrangements deliberately and each central bank acts carefully when conducting their policies in order to maintain the confidence. i will come back to this point in more detail later. iii. issues related to fiscal balance having talked about the interdependency of confidence, let me discuss the importance of confidence in light of japan ’ s current fiscal condition. as for unconventional monetary policies taken by central banks after the failure of lehman brothers, see monetary affairs department, bank of japan, “ major central banks ’ policy operations in the current financial crisis, ” ( july 2009, in japanese ). bis central bankers ’ speeches japan ’ s current fiscal condition is very severe ( slide 4 ). the outstanding amount of gross financial liabilities of the government is as high as 198 percent of gdp. as the japanese government, unlike other major countries ’ governments, has a large amount of financial assets, some observers argue that net liabilities rather than gross liabilities may be a more adequate indicator for true indebtedness of the japanese government. in terms of net financial liabilities of the government, japan is still ranked as the worst among developed countries with its ratio of 114 percent, higher than that of italy, which is 103 percent. in any event, so far japan has experienced no currency crisis or financial crises triggered by the deterioration in fiscal balances that occurred in some other countries. though the necessity of the sustainability of fiscal balance is generally well recognized in japan, arguments which raise the alarm on risks associated with the deterioration in fiscal balance are sometimes regarded as crying wolf. that is because japanese government securities have been

important for me to speak about the economy. even as we face headwinds from abroad, domestic economic activity has already exceeded pre - pandemic levels. from real wages and employment prospects to investments and domestic demand, various indicators point to relative strength in our economy. 1 / 3 bis - central bankers'speeches this underscores the importance of a solid foundation. we entered the pandemic crisis economically stable and well buffered. we could not have achieved this without our sound fundamentals and the conventions of measured and evidence - based policymaking – as they say, " sains dan data ". this is especially true of monetary policy. with the economy gaining strength, macro policies such as the opr must be adjusted. this is necessary to ensure that our broad macro policies match our economic realities. at the same time, we recognise that although the overall economy is in good health, there are some who are still facing economic challenges. however, given that the opr is by design a blunt tool to deliver price stability, more targeted measures are in place to help those who may be facing difficulties in meeting their monthly loan repayments. help continues to be available through banks or akpk, which can work out new repayment arrangements tailored to individual circumstances. in this way, policies can work to deliver what the economy needs. by acting sooner rather than later in managing inflation, we have been able to move in a measured and gradual way, avoiding large and more disruptive adjustments which would have been much more costly for the economy. we are still experiencing high and elevated inflation, partly due to strong demand. yes, some cost pressures are coming down, but it has not translated to the final prices of goods because demand remains high. the cost of making nasi lemak has probably eased but with people still queuing as far as 100 metres for akak nasi lemak, as widely shared on tiktok, prices are unlikely to come down as long as demand stays strong. if we do not manage excessive price pressures like we see in some other economies, this will affect everyone through lower purchasing power. the b40 and vulnerable groups are the ones who will be the most affected if we let inflation get out of hand, and we will not be able to preserve sustainable growth over the longer term. let us also not forget that keeping rates too low for too long can have damaging effects on the economy. the devastation of the global financial crisis more than a decade ago,