a relatively safe currency ( chart 5 ). given this background, the bank introduced the cme policy in october 2010. this policy comprises the following three pillars. first, the guideline ( or targeted policy rate ) for money market operations was changed from “ around 0. 1 percent ” to “ around 0 – 0. 1 percent. ” this policy could be regarded as a virtually zero interest rate policy. in addition, the interest rate applied to the complementary lending facility was maintained at 0. 3 percent and that to the complementary deposit facility at 0. 1 percent. second, the bank newly introduced the forward guidance policy and made the commitment to a zero interest rate policy being maintained until the price stability defined under the “ understanding of medium - to long - term price stability ” was in sight. 13 the expression describing price stability was maintained as in a positive range of 2 percent or lower with a this commitment will be pursued under the condition that no problem is identified when examining risk factors, including the accumulation of financial imbalances. the same condition applies to all other revised commitments. bis central bankers ’ speeches midpoint of around 1 percent. in february 2012, an important decision was made to revise this framework in two steps. the first step was to introduce “ the price stability goal in the medium to long term, ” which would be “ within a positive range of 2 percent or lower, ” while setting the goal “ at 1 percent for the time being. ” the definition of this goal was to be examined in principle once every year. the second step was to strengthen the forward guidance policy by committing to the cme policy through the virtually zero interest rate policy and the asset purchase program, which i will describe later, until the bank judged that the 1 percent goal was in sight. i believe that these changes constitute a considerable departure from previous practices for two reasons. one is because medium - to long - term price stability is now defined as a “ goal ” and is uniformly set through the consensus of all members of the policy board. previous price stability was defined as an “ understanding ” in a manner that embraced differing views of price stability by each member, or it was simply a collection of the board members ’ various views. the other reason is that at both the market and individual level, the word “ goal ” may be viewed as a sign of stronger action on the part of the bank than the word “ understanding ” would suggest, even though the bank ’ s determination to conquer mild deflation is

forward guidance policy by pushing the yield curve downward ( namely, through the signaling effect ). the portfolio rebalance effect meanwhile had mixed results, depending on the types of assets. in particular, the purchase of jgbs had little impact on lowering risk premiums. however, some research analyses demonstrated the presence of the portfolio rebalance effect through the channel of cross - border capital flows. namely, the qe policy induced capital outflows, whose funds were then reinvested in japanese stocks by foreign hedge funds, and they contributed to raising those stock prices. with regard to the second stage, a small number of empirical studies have examined the impact of qe on macroeconomic performance. some demonstrated that an expansion of the bank ’ s balance sheet had a limited impact on aggregate demand and prices ; other studies showed that there was a statistically significant positive impact of qe on industrial production, but no statistically significant impact was found on the core cpi. 8 the overall assessment of the qe policy was made by the then bank governor fukui in 2006. 9 first, the policy stabilized the financial system through the ample liquidity provision at a time when there were strong concerns over its stability. the ample liquidity provided by the bank met rising liquidity demand by financial institutions, and it thus successfully avoided a repetition of the large - scale credit crunch that occurred during the 1997 – 98 financial crises. second, the policy created and maintained a very accommodative environment that supported the recovery of japanese firms through the commitment to continue zero interest rates. in particular, bank lending rates and interest rates on corporate bonds continued to decline as a result of the flattening of the yield curve as well as the gradual decrease in credit risk premiums. meanwhile, the bank stressed that a side effect of the qe policy was shrinkage of the interbank markets owing to fewer arbitrage transactions and reduced demand for fund - raising from the market. this led to a decline in credit lines among financial institutions and a cut in resources allocated to the interbank market business within financial institutions. the function of the interbank market appears to have been impaired. moreover, it was clear that such an accommodative monetary policy could not promote active lending activities by banks ( chart 8 ). this was mainly attributable to the size of see ugai, hiroshi, “ effects of the quantitative easing policy : a survey of empirical analyses, ” bank of japan working paper series no.