koji ishida : economic activity and prices in japan and monetary policy speech by mr koji ishida, member of the policy board of the bank of japan, at a meeting with business leaders, saitama, 26 february 2014. * * * i. monetary policy a. introduction of the price stability target and the joint statement by the government and the bank of japan first, i would like to describe the status of the bank of japan ’ s monetary policy conduct in january 2013. at the monetary policy meeting ( mpm ) held on january 21 and 22, 2013, the bank decided to introduce the price stability target of 2 percent in terms of the year - on - year rate of change in the consumer price index ( cpi ). at the same time, it released a joint statement with the government, which clearly stated that the government and the bank would strengthen their policy coordination and work together to overcome deflation early and achieve sustainable economic growth with price stability. in the statement, the bank announced that, under the price stability target, it would pursue monetary easing and aim to achieve this target at the earliest possible time. concurrently, the government announced that it would not only flexibly manage macroeconomic policy but also formulate measures for strengthening the competitiveness and growth potential of japan ’ s economy, and promote them strongly. the government also announced that it would steadily promote measures aimed at establishing a sustainable fiscal structure with a view to ensuring the credibility of fiscal management. b. quantitative and qualitative monetary easing ( qqe ) now i would like to talk about the bank ’ s current monetary policy measures. at the mpm held on april 3 and 4, 2013, the bank introduced qqe to achieve the price stability target of 2 percent in terms of the year - on - year rate of change in the cpi at the earliest possible time, with a time horizon of about two years. the features of this new monetary policy measure are as follows. first, with a view to pursuing quantitative monetary easing, the bank changed the main operating target for money market operations from the uncollateralized overnight call rate to the monetary base, which is the total amount of money the bank directly supplies to the economy. on this basis, the bank is increasing the monetary base – defined as the sum of banknotes in circulation, coins in circulation, and current account deposits held by financial institutions at the bank – at an annual pace of about 60 – 70 trillion yen. second, the

bank is purchasing japanese government bonds ( jgbs ) as the primary means of increasing the monetary base, so that their amount outstanding will increase at an annual pace of about 50 trillion yen. moreover, the average remaining maturity of the bank ’ s jgb purchases has been extended from slightly less than three years to about seven years – equivalent to the average maturity of the amount outstanding of jgbs issued. third, in addition to jgbs, with a view to lowering risk premiums of asset prices, the bank is purchasing exchange - traded funds ( etfs ) and japan real estate investment trusts ( j - reits ) so that their amounts outstanding will increase at an annual pace of about 1 trillion yen and 30 billion yen, respectively. and fourth, the bank will continue with qqe, aiming to achieve the price stability target of 2 percent, as long as it is necessary to maintain the target in a stable manner. it will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate. so far, i have explained the basic framework of qqe. almost a year has passed since qqe was introduced in april 2013. the amount outstanding of the monetary base has increased from 138 trillion yen at the end of 2012 to 202 trillion yen at the end of 2013, and has been accumulating smoothly toward 270 trillion yen, the amount projected at end - 2014. the bis central bankers ’ speeches amount outstanding of jgbs has also been accumulating smoothly toward 190 trillion yen, the amount projected at end - 2014, increasing from 89 trillion yen at the end of 2012 to 142 trillion yen at the end of 2013. c. loan support program in addition to implementing qqe, the bank has been employing the loan support program to promote financial institutions ’ use of the large scale monetary base – supplied by the bank through its aggressive monetary easing – for their efforts to increase the amount of bank lending and strengthen the growth potential of japan ’ s economy. at the mpm held on february 17 and 18, 2014, the bank decided to double the scale of the loan support program and to extend its application period by one year. the loan support program consists of two measures : the fund - provisioning measure to stimulate bank lending ( hereafter the stimulating bank lending facility ) and the fund - provisioning measure to support strengthening the foundations for economic growth ( hereafter the growth - supporting funding facility ). specifically, under the former,