and qualitative monetary easing as a means to underpin this commitment. concretely, with a view to pursuing quantitative monetary easing, the bank decided to change the main operating target for money market operations from the uncollateralized overnight call rate ( i. e., interest rates ) to the monetary base ( i. e., quantity ) and conduct money market operations so that the monetary base will increase at an annual pace of about 60 – 70 trillion yen. the monetary base is the currency supplied to the economy as a whole by the bank ; more specifically, it is the sum of banknotes and coins in circulation and financial institutions ’ current account deposits at the bank of japan. as of end - 2012, its amount outstanding was 138 trillion yen, and it is expected to reach about 200 trillion yen at end2013 and 270 trillion yen at end - 2014. it will almost double in two years. this accounts for nearly 60 percent of nominal gdp, far above the levels of any other advanced economies. as a means to increase the monetary base, the bank decided to purchase jgbs so that its holding of their amount outstanding on the bank ’ s balance sheet will increase at an annual pace of about 50 trillion yen. consequently, the bank ’ s holding of jgbs will be increased from 89 trillion yen at end - 2012 to 190 trillion yen at end - 2014. in short, it will more than double in two years. the monthly flow of jgb purchases is expected to become 7 + trillion yen, because the bank needs to compensate for jgbs redeemed. in terms of quality, in increasing the purchases of jgbs, those with all maturities including 40 - year bonds will be made eligible for purchase, and the average remaining maturity of the bank ’ s jgb purchases will be extended from slightly less than three years at present to about seven years – equivalent to the average maturity of the amount outstanding of jgbs issued. we intend to strengthen the working of monetary easing on the economy and prices by encouraging a further decline not only in shorter - term interest rates but also in those across the yield curve. furthermore, with a view to lowering risk premia of asset prices, the bank will purchase etfs and japan real estate investment trusts ( j - reits ) so that their amounts outstanding on the bank ’ s balance sheet will increase at an annual pace of about 1 trillion yen and about 30 billion yen, respectively. intelligible monetary policy

latitude in people ’ s expectations ; for example, some people may not share the view that the inflation rate will reach 2 percent in two years. for everyone – including those who are somewhat skeptical – to be convinced that sufficient monetary easing will be implemented, it is appropriate to state that the bank will continue with monetary easing, aiming to achieve the price stability target of 2 percent, “ as long as it is necessary. ” making such a commitment will, in the end, further ensure the achievement of the target in two years. i also want to elaborate on the meaning of “ as long as it is necessary. ” the bank does not believe 2 percent inflation achieved at a certain point in time is enough ; rather, it believes 2 percent inflation should be maintained in a stable manner. therefore, even if the inflation rate hits 2 percent at some point, the bank could continue with the quantitative and qualitative monetary easing if it is judged necessary to do so in order to maintain that rate in a stable manner. the opposite could also be true. in short, analyzing the fundamental movement of prices, the bank intends to continue with monetary easing, as long as it is necessary. iii. effects of the “ quantitative and qualitative monetary easing ” transmission channels of monetary easing effects i will next explain the mechanism of achieving the 2 percent target under the quantitative and qualitative monetary easing. the bank expects that the effects of monetary easing will permeate the economy and influence prices primarily through three channels. bis central bankers ’ speeches first, the purchases of jgbs, etfs, and j - reits will encourage a further decline in longerterm interest rates and lower risk premia of asset prices. this will raise firms ’ credit demand through a decline in funding costs. second, as a result of the bank ’ s massive purchases of jgbs, both investors and financial institutions investing in jgbs are expected to shift from jgbs to such risk assets as stocks and foreign - denominated bonds and / or to increase lending within their portfolios. in economic textbooks, this is referred to as a portfolio rebalancing effect. the extension of the average remaining maturity of jgb purchases reflects our understanding of such an effect. third, the commitment to achieve the price stability target at the earliest possible time and the continuation of the new phase of monetary easing are thought to drastically change the expectations of markets and economic entities. this is what i referred to earlier as the elimination of