in a newspaper opinion page, professor paul krugman of princeton university, a nobel economic sciences laureate, cited “ the fed ’ s strange, destructive turn away from expansionary policy in 1932 ” in the midst of the great depression, arguing that “ a key factor [ behind the decision ] was the complaints of commercial banks that low interest rates on government securities were squeezing their profits. ” 8 given that the monetary tightening led to a further deepening of the depression and deterioration of banks ’ business conditions, the tightening clearly was a misjudged action that focused on narrow and fleeting interests. iii. transmission mechanism of qqe for economic recovery thus far, i have shown that qqe has helped japan ’ s economy recover, albeit at a moderate pace. now, i would like to discuss the mechanism through which this has been achieved. qqe has been effective in reducing real interest rates by lowering long - term interest rates and raising inflation expectations. the bank has committed to increasing the monetary base in order to raise inflation expectations, and the increase in the monetary base has had in the current phase of economic recovery, bank lending has been increasing, but there were many cases in the past where the economy recovered as a result of monetary easing without an increase in bank lending. for details, see yutaka harada, “ nihon wo sukutta rifure - ha keizaigaku ( reflationalist economics that saved japan ), ” nikkei publishing inc., november 2014, pp. 49 – 50 ( available only in japanese ). for details on foreign exchange rates mentioned in the arguments, see ai nakagawa and yutaka harada, “ kinyu kanwa seisaku, tsuka sensou, koueki joken ( monetary easing policy, competitive devaluation, and terms of trade ), ” the keizai seminar, december 2015 - january 2016, nippon hyoron sha co. ltd. ( forthcoming ; available only in japanese ). bank of japan, financial system report, october 2015, charts iii - 1 – 29 and iv - 2 – 2. paul krugman, “ rate rage in 1932, ” the new york times, september 22, 2015. bis central bankers ’ speeches portfolio rebalancing effects in the broad sense of the term ; namely, the effects of boosting stock prices and weakening the yen. 9 chart 9 shows the bei rates, which are calculated from the price of inflation - indexed jgb

change in the cpi ( all items less fresh food ) was negative for september, registering minus 0. 1 percent 3. however, this was caused by a decline in energy prices due to the fall in crude oil prices worldwide, and prices in terms of the cpi for all items less fresh food and energy show a steady increase. as energy prices will not continue falling forever, i am confident that the cpi for all items, including energy, will start to rise as the effects of the fall in energy prices dissipate over time. monetary policy and price movements chart 8 shows the correlation between the monetary policy and price movements since 2012. this chart indicates the actual inflation rates in terms of the cpi and inflation expectations ; namely, the breakeven inflation ( bei ) rates, which are calculated from the price of inflation - indexed jgbs. 4 both the bei rates and the cpi started to rise after the introduction of qqe in april 2013 that followed the inauguration of the second abe cabinet in december 2012. however, after entering fiscal 2014, increases in the cpi excluding the effects of the consumption tax hike, the cpi for all items less fresh food, the cpi for all items less fresh food and energy, and also the bei rates became stagnant. to resolve this situation, the bank expanded qqe in october 2014, and the bei rate and the cpi for all items less fresh food and energy started rising again. in light of this result, the introduction and expansion of qqe have been effective in pushing up the inflation rate, as recent price developments show. here, i would like to note that the consumption tax hike has a negative impact on economic activity, and that this works to push down the inflation rate. the hike reduces consumer demand by exerting downward pressure on households ’ real income, which then lowers the inflation rate. i feel that, in many cases, this is a point that is forgotten in discussions on prices. the reasons why the bank had not implemented monetary easing japan ’ s economy has been recovering and moving toward overcoming deflation as a result of qqe. until this bold measure was taken under governor kuroda ’ s leadership, there had been criticism that the bank had not been implementing sufficient monetary easing. the following arguments have been pointed out as reasons behind the bank ’ s hesitation at that time. the bank was not able to implement monetary easing given that interest rates were at while the bank has adopted the cpi for all items including fresh food as