this combination of elevated investment - return expectations and market expectation of continuously low policy rates accelerated property investment, both residential and commercial, though especially the latter. property investment is a long - term, irreversible investment. it is a lengthy process from starting to find a lot to final dedication, and once built for a particular purpose, it is difficult to change usage. this is especially important in japan, where some urban redevelopment may take years. thus, not only the current policy rate but also the expectations of its future course have a significant effect on investment decisions. consequently, the expectation of continuing monetary easing significantly encouraged property investments, and particularly those in commercial properties. because of the inherent irreversibility, the excessive optimism inflicted a huge scar on japanese commercial property markets. the quality - adjusted commercial land price index of tokyo ’ s central business districts was 2. 161 in 1999 ( 1975 index = 1 ), down from its height 16. 556 in 1990. 11 it is mind - boggling to imagine how this 87 % decline in commercial land prices in the heart of tokyo, which is the center of the japanese economy, affected business activity in general. the same is true for residential property markets, though to a lesser extent. moreover, since investment in industrial sectors is often long - term and irreversible, this view has been expressed notably by many federal reserve officials in the past. this view is articulated in white, w., “ is price stability enough? ” bis working paper no. 205, april 2006, bank for international settlements. see figure 1 in shimizu, c., and k. g. nishimura, “ biases in appraisal land price information : the case of japan ”, journal of property investment and finance, 24 ( 2006 ) 150 – 175. they also suffered serious overcapacity and misallocation problems caused by the excessive optimism of the late 1980s and its subsequent collapse. in retrospect, taking account of the devastating effects of excessive optimism and also the ineffectiveness of macro - prudential measures ( in particular, window guidance as explained before ), few would disagree that monetary policy should have played a role in attempting to rein in excessive optimism, provided that this had been detected at the time. this episode teaches two lessons about the role of monetary policy and its relation to macroprudential measures in the process of the buildup of financial imbalances. firstly, when excessive optimism prevails in

firms, and financial markets need to act on the assumption that prices will increase by about 2 percent ; in other words, that medium - to long - term inflation expectations be about 2 percent. so far, medium - to long - term inflation expectations have been mostly in positive territory as a trend, while actual prices have long been on a declining trend. consequently, price stability has not been achieved, and thus the economy has been in an undesirable situation. this is the background to why it became necessary to introduce qqe. however, i think that medium - to long - term inflation expectations in japan are mainly determined by supply side factors such as the potential growth rate and the labor productivity growth rate, rather than by the level of the bank ’ s price stability target and the supply and demand balances in the goods, services, and labor markets. at least for now, i think that the 2 percent target is well above the level that is consistent with the economy ’ s growth potential. for example, although the observed inflation rate has risen markedly, recent various indicators suggest that the rise in medium - to long - term inflation expectations, such as for five to ten years ahead, remains moderate. therefore, to achieve the price stability target of 2 percent, i think it is necessary that a wide range of economic entities make use of the benign economic and financial environment brought about by qqe and make continuous efforts to strengthen the economy ’ s growth potential. if medium - to long - term inflation expectations rise as a result of such efforts, it could become appropriate to set the target for the level of inflation at 2 percent, although i think that this will require considerable time. due to the reasons i have explained so far, i have continued to propose at mpms not to restrict the time frame for achieving the 2 percent price stability target to about two years, but to aim to achieve it in the medium to long term. moreover, i think there will be room for a future review of the level of the price stability target that is currently set at 2 percent, considering future changes in the growth potential and medium - to long - term inflation expectations. b. issues to be considered regarding qqe when the introduction of qqe was decided in april 2013, i supported the concrete measures of qqe because i considered that this would open up significant opportunities in terms of three aspects. first, the measures would provide an opportunity on the demand side to create a virtuous cycle