trend in consumer price inflation should contribute to containing the inflation expectations of economic agents and thereby have a positive influence on price and wage - setting behaviour. this view is confirmed by bond yields, which indicate that financial markets expect inflation developments to be in line with the definition of price stability in the medium term. overall, in view of recent monetary, financial and economic developments, the governing council saw scope for a downward adjustment in key ecb interest rates by 25 basis points on 30 august 2001. the governing council considers the new level of key ecb interest rates to be appropriate for the maintenance of price stability over the medium term. turning to fiscal policies, let me express my concern about the possible impact of the slowdown in economic activity on the willingness of the governments of some euro area countries to stick to the stability and growth pact and to their stability programmes. any loosening of fiscal commitments, or initiatives to " re - interpret " the stability and growth pact itself, can only be counterproductive in the current circumstances, since this could undermine the confidence in the determination of the euro area to stick to a stability - oriented fiscal policy. to avoid this, only countries whose budget positions are close to balance or in surplus have scope to let the automatic stabilisers work fully in this phase of lower economic growth. by contrast, it would be advisable for those countries with remaining fiscal imbalances to limit the deviation from the nominal targets set out in their latest stability programmes. looking ahead, it will be important that budgetary targets for 2002 be set in such a way that budgetary positions close to balance or in surplus are either maintained or can be reached within the time frame set by the existing stability programmes. indeed, a medium to long - term orientation is essential for the conduct of fiscal policies in all euro area countries. short - term discretionary measures aimed at strengthening domestic demand not only risk having an unwelcome impact on the economy, partly as a result of time lags, but may also affect the solidity of public finances and the consolidation process in a more lasting manner. efforts to set the conditions for the further expansion of the production potential of the euro area must remain a priority. while progress is being made in a number of areas, more ambitious market - oriented structural reforms remain a challenge. labour market reforms aimed at providing the right incentives to economic agents and the liberalisation of sectors still sheltered from competitive forces are areas in which progress is still needed. fiscal reforms to dimini

are staff estimates and exclude the effects of the consumption tax rate hikes, and others. 2 % with a median of 1 % was consistent with its understanding of price stability before clarifying further by confirming in december 2009 that the range did not include negative values, and the boj finally introduced the price stability target of 2 % in january 2013. with hindsight, the introduction of a clear inflation target could have influenced the discussion before the boj's decision to terminate the zero - interest policy in august 2000. at that time, core inflation was still - 0. 5 percent, while forward guidance on the short rate introduced in april 1999 stated that the bank would continue the zero rate until deflationary concerns were dispelled. although it is difficult to attribute the subsequent deflation solely to the minor rate increase, the termination may have weakened the efficacy of the forward guidance. another aspect worth considering is the timing of asset purchases. the boj's active acquisition of long - term jgbs happened relatively late compared with the observed inflation dynamics ( chart 1 ). while the boj began buying more long - term jgbs with the onset of quantitative easing in march 2001, there was no significant increase in its holdings of jgbs until 2013, as shown in chart 3. by contrast, the fed's holdings of us treasury securities began to rise sharply in early 2009, in response to the global financial crisis. having said that, it should be noted that, as shown in chart 4, the 10 - year jgb yield was already below 2 % in the late 1990s, while the 10 - year treasury yield was close to 4 % when the fed initiated its large asset purchases. this prompts the question of how much impact larger - scale jgb purchases would have had in the early 2000s. the zero - inflation trap and the entrenched nature of low inflation expectations let me now turn to a second possible explanation for the boj ’ s difficulties. i think the entrenched nature of low inflation expectations played a key role ; it led to changes in economic agents'behavior, especially the strategic pricing behavior of firms, and, in turn, prolonged the period of the zero - inflation trap. as my colleagues will elaborate later, when firms do not think their peers will raise prices, they think it is best to keep their prices ( and wages ) unchanged, even in the face of small changes in costs or demand, making overall inflation or inflation expectations more entrenched