of ample liquidity and prevented japan ’ s economy from falling into a deflationary spiral. however, it was not powerful enough to reverse the declining trend in inflation expectations and overcome deflation. as mentioned earlier, japan ’ s natural rate of interest had been falling due to the decline in the potential growth rate ; at the same time, real interest rates remained high due to the zero lower bound on nominal short - term interest rates and the decline in inflation expectations. as a result, qe did not provide sufficiently accommodative financial conditions. under these circumstances, a vicious cycle of a decline in prices, a fall in sales and profits, restraint in wages, stagnation in consumption, and a further decline in prices took hold. this indicates that once the economy becomes stuck in a deflationary equilibrium, it is difficult to escape from it. from a theoretical perspective, the policy prescriptions are obvious. what is needed is to remove, once and for all, the deflationary mindset and raise inflation expectations – that is, to lower real interest rates – through decisive monetary easing, and to raise the potential growth rate – that is, to raise the natural rate of interest – through a growth strategy and deregulation. this, in fact, is exactly what the three arrows of abenomics are aimed at. one can often hear discussions as to whether monetary easing or structural reforms are more important, but i do not see this is a particularly constructive question. both are essential for overcoming deflation and achieving sustainable growth. it is not a question of either monetary easing or structural reforms – they are complementary to each other. with regard to the first arrow, monetary policy, the bank of japan introduced the price stability target in january 2013 with the aim of achieving 2 percent inflation in terms of the year - onyear rate of change in the cpi. this was followed, in april 2013, by the introduction of qqe to achieve the price stability target of 2 percent at the earliest possible time. the challenge for i gave my detailed views on the implications of the decline in the potential growth rate in my speech on “ monetary policy and structural reforms ” at the japan society in new york in february 2016. bis central bankers ’ speeches monetary policy is how to raise inflation expectations given the limited room for lowering shortterm interest rates. for this reason, qqe consists of two elements. the first is the bank ’ s strong and clear commitment to the target. specifically,

growth rate is due partly to the deceleration in productivity growth. to give you one example, it appears that there is substantial room for productivity improvements in it - related sectors. both in it - producing and it - using sectors, productivity growth is lower than in the united states ( chart 10 ). in this context, a survey on firms in the united states and japan provides instructive results : compared to firms in the united states, fewer firms in japan attach importance to it investment or have a chief information officer ( cio ). these results suggest that strengthening japan ’ s growth potential is not something that can be achieved through the government ’ s growth strategy alone ; what is also needed are greater efforts on the part of the private sector to strengthen competitiveness. vi. lessons for europe finally, i would like to make a few comparisons between japan ’ s lost decades and europe since the global financial crisis. what is worth noting is that in europe the policy response has been quick and decisive. in addition to innovative policy measures such as the coordinated provision of dollar funds by the major central banks through swap arrangements, financial system instability was warded off through the provision of ample liquidity, preventing the financial crisis from turning into a global panic. moreover, on the institutional front, the single supervisory mechanism ( ssm ) for the supervision of banks became operational. further, i expect that efforts to deal with remaining issues such as the full operation of the single resolution mechanism ( srm ) charged with the resolution of failed financial institutions and the expeditious recapitalization of undercapitalized banks will make good progress. meanwhile, on the monetary policy front, the ecb has stressed from an early stage the risks associated with a potential decline in inflation expectations. in fact, the ecb has responded very proactively, being the first among major central banks to introduce a negative interest rate policy and combining it with asset purchases. there is also perceived to be a need to redouble efforts to drive ahead with structural reforms to raise the potential growth rate. however, this too is clearly recognized, as indicated in president draghi ’ s observation that low interest rates are not the consequence of monetary policy but a symptom of low growth and low inflation. i am convinced that the risk of a japanization of the euro economy is small, given that european policy makers are aware of the issues and are responding appropriately. conclusion in my speech today i tried to look back at japan ’ s