##s are mostly purchased and held by residents in japan. however, in view of the fiscal burden that will be required to support the aging society, it is uncertain whether domestic sources of funds alone might continue to assume such a burden. the surplus in household funds is on a downward trend and firms might cease to hold surplus funds due to the changes in corporate investment behavior. for more information concerning empirical studies on, and overseas examples of, the effects of outright central bank purchases of government securities on long - term interest rates, see the speech “ recent economic and financial developments and the conduct of monetary policy ” i delivered at a meeting with business leaders in nagano in july 2009, a summary of which is available on the bank ’ s web site. federal reserve chairman ben s. bernanke has repeatedly commented that purchases of treasury securities were not conducted with the aim of targeting a particular interest rate, nor monetizing federal debt. the federal reserve and the bank of england completed their purchases of long - term government securities in october 2009 and january 2010, respectively. from march 2001 to march 2006, the main operating target for the bank ’ s money market operations was changed from a specific interest rate – the uncollateralized overnight call rate – to the amount of funds – the total outstanding balance of current accounts held by financial institutions with the bank which include reserve balances. specifically, the guideline for market operations was set as “ the bank of japan will conduct money market operations, aiming at the outstanding balance of current accounts held at the bank at around xx trillion yen ”. this type of money market operations was called a “ quantitative easing policy ” because it was conducted by achieving the target aimed at the financial quantitative indicator. at present, the bank provides ample funds by conducting various operations, setting the operating target not at a quantitative indicator but at the policy interest rate. on this point, the research paper from the federal reserve bank of new york, entitled “ why are banks holding so many excess reserves? ”, written by todd keister and james j. mcandrews, and released in december 2009, concludes that “ the liquidity facilities and other credit programs introduced by the federal reserve in response to the crisis have created, as a by - product, a large quantity of reserves in the banking system ” ; and “ the total quantity of reserves in the banking system reflects the scale of the fed ’ s policy initiatives, but conveys no information of the initiatives ’ effects on the bank lending or

tadao noda : my answers to the frequently asked questions regarding monetary policy speech by mr tadao noda, member of the policy board of the bank of japan, at a meeting with business leaders, shiga, 4 march 2010. * * * introduction i was appointed as a member of the policy board of the bank of japan in june 2006 after having worked mostly at a bank and also at firms in the private sector, for a total of 37 years. thus, my background does not make me a central banker in the strictest sense. however, since my appointment as a full - time bank officer, i am able to draw on my experience in the private sector in day - to - day deliberations and discussions on monetary policy and the bank ’ s operations. today, in this speech, i will present my views by means of answering frequently asked questions ( faqs ) about economic and financial developments and the conduct of monetary policy. broadly speaking, i will discuss the following three faqs. i. where is japan ’ s economy heading? ii. how is the bank ’ s monetary policy conducted? iii. what is the cause of, and remedy for, the issue of deflation? i. the outlook for japan ’ s economy : where is it heading? i will first discuss where japan ’ s economy is heading. a. the current situation : the economy has been picking up, but the momentum to support self - sustained recovery is still weak japan ’ s real gdp growth rate was in the range of 2 – 3 percent from fiscal 2003 to fiscal 2006, but dropped to 1. 8 percent in fiscal 2007. in fiscal 2008, economic conditions deteriorated substantially and the economy registered negative growth of 3. 7 percent. after the failure of lehman brothers, extreme cautiousness spread in many financial markets and the flow of funds necessary for economic activity contracted, rapidly reducing global demand. demand in japan fell sharply, mainly in leading industries – notably automobiles, electronic machinery, and general machinery – and the economy was affected more heavily by the global financial crisis than that of the united states, where the crisis started. since the beginning of fiscal 2009, japan ’ s economy has been picking up, as shown by the relatively large growth in the real gdp growth rate on a quarter - on - quarter basis for two quarters – the april – june and october – december quarters – although it registered 0 percent growth for the july – september quarter. exports have been increasing due to the improvement in overseas