. 11 toward the end of the flash crash, some high - frequency traders intensified their activities as market liquidity declined dramatically. declining market liquidity meant the absence of their usual trading counterparties, and thus these highfrequency traders repeated and intensified their automatic high - speed trading among themselves. their activities led to sizable price volatility in a very short period of time. it should be noted here that, even though high - frequency traders supply liquidity to the market by offering a limit order and thus make a position when it is hit, these high - frequency traders try to close the position immediately after the original transaction. this is indeed why such traders are called “ high frequency ” traders. consequently, when there are large demand - supply gaps among non - high - frequency traders in the beginning, it is not at all likely in the end that the liquidity provided by high - frequency traders is sufficient to fill these gaps. moreover, if the market is dominated by mechanistic traders, who react to microscopic directional changes in 9 prices rather than to market fundamentals, market prices may deviate further and further from the fundamentals once a demand - supply gap emerges. the flash crash is a perfect example of this, where the end result was just the contrary to the supposed stabilization. this serves to remind us of the utmost importance of market diversity, with respect to sellers and buyers, their strategies, and their referenced information. i would like to insist again that, in order to make markets function well, it is essential to have both non - high - frequency investors and high - frequency traders, of various kinds. just focusing on high - frequency traders is rather misleading in understanding the impact of electronic trading in financial markets. 5. closing remarks as i have documented so far, advances in information and communication technology have sent ripples and waves over the entire financial industry, providing new opportunities for growth and efficiency. at the same time, these advances pose serious challenges to see kirilenko, a., a. s. kyle, m. samadi, and t. tuzun, 2010, “ the flash crash : the impact of high frequency trading on an electronic market, ” preprint, available at http : / / ssrn. com / abstract = 1686004. maintaining market stability and integrity. thus, to take full advantage of these opportunities, we should work together to maintain the stability and integrity of the financial market and, thereby, the financial system itself

intention. this is particularly because people are accustomed to the deflationary environment and the pace of nominal wage growth has not yet caught up with that of the price increase, partly owing to the consumption tax hike. this is even more so when some time is required to raise expectations for future income. therefore, as i have emphasized several times in the past, it is essential for the bank to boost the effectiveness of its communication strategy by explaining more clearly to the public and the market why it aims to achieve the 2 percent target and how this will improve people ’ s lives in the medium to long term. i will continue making further efforts in this regard. in addition, views that the effectiveness of qqe has waned tend to grow particularly when the economic data appear less favorable. however, it is clear that the japanese economy is currently in far better shape than it was prior to the introduction of qqe. a virtuous cycle from income to spending, which is the driving force of the economy, is being maintained in the household and corporate sectors. thus, it is crucial for the bank to continue to stick to the 2 percent price stability target without any hesitation. enhancing competitiveness and achieving sustainable economic growth require sensible risk - taking behavior on the part of all entities involved – firms, households, and financial institutions. however, the long - standing deflation - oriented mindset has discouraged such behavior. this is why the bank has adopted its large - scale monetary easing policy with the aim of helping to generate the risk money necessary to energize the economy by transforming the mindset. i sincerely hope that all entities will take full advantage of the opportunity afforded by the highly accommodative financial environment generated by qqe to expand their efforts to produce innovative goods and services, which will lead to the tapping of potential demand and boosting of productivity, in concert with the economic growth strategy and structural reforms implemented by the government. thank you for your kind attention. bis central bankers ’ speeches