be a bit technical, the inflation rate based on the cpi that the bank refers to tends to be higher than actual inflation. given this, aiming at zero inflation in terms of the cpi means aiming at negative inflation, in effect. therefore, in order to ensure price stability, the inflation rate should be sufficiently positive. the next point regards securing policy room for the future. the level of nominal interest rates is usually determined in accordance with that of inflation rates. looking at the interest rate levels around 2007, right before the global financial crisis, whereas the policy interest rates in the united states and europe were around 4 to 5 percent with inflation of around 2 percent, the policy interest rate in japan, or the uncollateralized overnight call rate, was only 0. 5 percent with almost zero inflation ( chart 9 ). in response to the global financial crisis, which exerted a significantly negative impact on the global economy, the united states and europe counteracted this shock with monetary easing that pushed down the policy interest rates by 4 to 5 percentage points to around 0 percent. on that occasion, although japan also reduced the policy interest rate to around 0 percent, as the united states and europe did, it was only able to exert limited monetary easing effects of 0. 5 percentage point. as you remember, the real gdp in japan dropped more significantly than that in europe and in the united states, the epicenter of the crisis. this implies the possibility that the fact that japan had less room for policy responses in lowering interest rates became a contributing factor to the severer downturn of the economy. with the level of nominal interest rates being high, japan's economy will have more policy room to mitigate the impact of future economic downturns, or will be equipped with a sort of insurance for sustained economic growth. so far, i have mentioned a bias in price statistics and securing policy room for the future, but these alone do not give a good enough reason why the target level of inflation has to be 2 percent. there are some proposals advocated overseas that the target level of inflation should be 3 to 4 percent in order to further increase policy room, although these proposals themselves do not seem realistic. so, why is 2 percent considered most appropriate? to answer this question, the third reason, a global standard, is key. central banks in major economies are currently conducting monetary policy with the aim of achieving around 2 percent inflation. given this, the bank of japan's monetary policy conduct with

). this shortening occurred even though the ecb ’ s assessment of prices and economic activity and its monetary policy inclination remained constant. the earlier - than - projected hike in the interest rate implies a faster - than - projected monetary tightening, which may undermine the economic recovery process. in this sense, the ecb ’ s action can be interpreted as a provision of monetary accommodation, because it helped lengthen the expected duration of the current interest rate policy by financial markets in line with the ecb ’ s view. c. forward guidance in the united kingdom in the united kingdom, the monetary policy committee ( mpc ) of the boe made a new move in july 2013, although it was not forward guidance describing the future monetary policy stance. after expressing concerns about the significant upward movement in market interest rates, the statement it issued indicated that in the committee ’ s view, the implied rise in the expected future path of bank rate [ the policy interest rate ] was not warranted by the recent developments in the domestic economy. because the statement helped to lower the market interest rates, the effects were similar to those of the ecb. following a new remit letter from george osborne, the chancellor of the exchequer, in march 2013, the mpc released a comprehensive set of forward guidance over the future conduct of monetary policy in august 2013. the statement indicated that the mpc intends not to raise bank rate from its current level of 0. 5 percent at least until... the unemployment rate has fallen to a threshold of 7 percent, subject to the conditions below. the mpc stands ready to undertake further asset purchases while the unemployment rate remains above 7 percent, if it judges that additional monetary stimulus is warranted. it was also stated that the stock of asset purchases would be maintained until the 7 percent threshold is reached and subject to conditions. the conditions are then defined in the form of the following three “ knockouts ” : ( 1 ) the cpi inflation 18 and 24 months ahead will be above 2. 5 percent ; ( 2 ) medium - term inflation expectations do not remain well anchored ; and ( 3 ) the financial policy committee ( fpc ) judges that the stance of monetary policy poses a significant threat to financial stability that cannot be contained by the substantial range of mitigating policy actions available to the fpc. if any of these knockouts are breached, the mpc will cease the above - mentioned guidance. it is state - contingent guidance, linking to the policy interest rate, asset