##kit. by considering, communicating, and, potentially, deploying our policy tools independent of one another, we have the best chance to achieve the federal reserve ’ s dual objectives of price stability and maximum employment. i consider the fed ’ s policy rate – the federal funds rate – to be the dominant tool in the conduct of operations going forward. it is far and away the most powerful, its effects on the economy and financial markets most clearly understood, and it is the most effective in communicating our intentions. the fed ’ s balance sheet of $ 2. 3 trillion – of which $ 1. 6 trillion represents long - term treasury securities, agency mortgage - backed securities, and agency debt acquired since late 2008 – should be considered, sized, and comprised independently of the policy rate. in my view, the macroeconomic effects of these extraordinary holdings are less significant, their effects on financial market conditions less clear, and the markets ’ understanding of our objectives less understood than our dominant tool. still, if federal fiscal policy is approaching its political or economic limits, some believe that the federal reserve should do more, including expansion of its balance sheet. in my view, any judgment to expand the balance sheet further should be subject to strict scrutiny. i would want to be convinced that the incremental macroeconomic benefits outweighed any costs owing to erosion of market functioning, perceptions of monetizing indebtedness, crowding - out of private buyers, or loss of central bank credibility. the fed ’ s institutional credibility is its most valuable asset, far more consequential to macroeconomic performance than its holdings of long - term treasury securities or agency securities. that credibility could be meaningfully undermined if we were to take actions that were unlikely to yield clear and significant benefits. indeed, the federal reserve should continue to give careful consideration to the appropriate size and composition of its existing holdings. actual sales will not take place in the near term. but, depending on the evolution of the economy and financial markets, we should consider a gradual, prospective exit – communicated well - in - advance – from our portfolio of mortgagebacked securities. in making this judgment, we should continue to assess investor demand for these assets. ultimately, in my view, gradual, predictable asset sales by the fed should facilitate improvements in mortgage finance and financial markets. any sale of assets need not signal that policy rates are soon moving higher. our policy tools can indeed be used independently. i would note that the fed successfully communicated and

observations following the sample revisions. figures for 2022 / q2 are june - july averages. sources : ministry of health, labour and welfare ; bank of japan. chart 13 iii. the bank's conduct of monetary policy corporate finance diffusion indexes for firms'financial positions amounts outstanding of loans provided through the special operations in response to covid - 19 di ( " easy " - " tight " ), % points tril. yen - 10 large enterprises in all industries small enterprises in all industries small enterprises in face - to - face services industry - 20 - 30 cy 07 jan. july jan. july jan. july notes : 1. in the left - hand chart, figures for small enterprises in the face - to - face services industry are the weighted averages of the dis for retailing, transport & postal activities, services for individuals, and accommodations, eating & drinking services. 2. in the right - hand chart, figures are those at the end of each month. source : bank of japan.