in cabinet office, sekai keizai no choryu 2016 nen ii, chap. 1, section 1, january 2017. 6 haruhiko kuroda, " overcoming deflation and after : speech at the meeting of councillors of nippon keidanren ( japan business federation ) in tokyo, " bank of japan, december 2013. of these theories, i consider the buffer theory of interest rates within the second point to be the most important and would like to provide my view on it. this theory is completely different from the one advocated by the bank in the past. the previous theory aimed at raising interest rates preemptively even when the economic recovery was insufficient, because if interest rates were too low, it would be difficult to implement stimulus measures during recessions. such monetary policy resulted in a complete failure. the buffer theory should be interpreted as raising interest rates after confirming that price increases have gained enough momentum. this theory posits that interest rates will rise due to inflation. i would like to emphasize that the bank's current thinking on the buffer theory is totally different from the previous incorrect one. private banks'business consists of borrowing short - term debt and financing long - term lending. the higher long - term interest rates are relative to short - term rates, the larger banks'loan margins will be. since short - term interest rates generally do not rise as much as long - term rates, banks naturally will gain profits if interest rates go up due to an increase in the inflation rate. so, why did banks want a hike in interest rates as early as possible? maybe they have not been sufficiently aware of the mechanism that lowering interest rates to stimulate the economy will lead to a rise in inflation and hence in nominal interest rates, or maybe they have been aware of this mechanism but were so desperate for a rise in interest rates that they could not wait. moreover, there are many who say that the bank's large - scale asset purchases and negative interest rate policy are unusual, and thus the policy must be " normalized " as early as possible. 7 however, they never explain on what basis policy should be regarded as usual or unusual. termination of the zero interest rate policy in 2000 and of quantitative easing in 2006 can be regarded as attempts to " normalize " monetary policy, but these proved to be major failures. the premature tightening of monetary policy gave rise to concerns about a deterioration in the economy, and the spread between short - and long - term interest rates

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,