##s would alter supply and demand conditions in the jgb market and put strong downward pressure on long - term interest rates. however, there was a problem. the 10 - year government bond yield in japan was less than 1 percent. how could we make additional room for monetary easing? the point was the real interest rate, which is the nominal interest rate minus the expected inflation rate. in this regard, the situation facing japan, in which expected inflation rates were stagnant, fortunately provided a breakthrough to this question. by raising inflation expectations while containing a rise in nominal interest rates, we would be able to lower real interest rates, which affect decision - making with respect to business fixed investment and private consumption. let me elaborate on this. in the united states and europe, amid stagnant growth, observed inflation rates have been hovering around central banks ’ targeted inflation rate of 2 percent, and firms ’ and households ’ medium - to long - term expected inflation rates have also been stable at around 2 percent. in other words, expected inflation rates are anchored at around targeted inflation rates. in such cases, central banks cannot afford to raise expected inflation rates further. therefore, to lower real interest rates, nominal interest rates need to be lowered. when long - term interest rates fall to the historic low level of less than 2 percent, room to further lower real interest rates becomes limited, as there is not much room to further lower nominal interest rates. by contrast, in japan, expected inflation rates have been anchored at too low of a level compared with the 2 percent price stability target, and thus there is sufficient room to raise them. if a rise in nominal interest rates can be contained to a lesser extent than an increase in inflation expectations, then real interest rates can be lowered by that extent. with such a decline in real interest rates, business fixed investment and private consumption are expected to be stimulated, thereby elevating economic activity. observed prices are also expected to increase gradually. in addition, a rise in observed inflation will lead to an increase in inflation expectations. there is little time today to explain all the transmission channels of the qqe, but i have covered the core part. through its effects, it is our aim to stimulate the economy, improve the output gap and, above all, shift inflation expectations upward, and achieve the 2 percent price stability target as soon as possible. iii. achievements under qqe and perspective on overcoming deflation now that six months have passed since the qqe

suggests elevated risks in two areas : asset valuations and business leverage. first, asset valuations across a range of markets remain elevated relative to a variety of historical norms, even after taking into account recent market volatility. corporate bond yields remain low by historical comparison, and spreads of yields on junk bonds above those on comparable - maturity treasury securities are near the lower end of their historical range. spreads on leveraged loans and securitized products backed by those loans remain narrow. prices of multifamily residential and industrial commercial real estate ( cre ) have risen, while capitalization rates for these segments have reached historical lows. second, business leverage outside the financial sector has risen to levels that are high relative to historical trends. in the nonfinancial business sector, the debt - to - income ratio has increased to near the upper end of its historical distribution, and net leverage at speculative - grade firms is especially elevated. as we have seen in previous cycles, unexpected negative shocks to earnings in combination with increased interest rates could lead to rising levels of delinquencies among business borrowers and related stresses to some banks ’ balance sheets. safeguarding resilience through the cycle 1 / 5 bis central bankers'speeches we continue to assess the overall vulnerabilities in the u. s. financial system to be moderate by historical standards in great measure because post - crisis reforms have strengthened the regulatory and supervisory framework for the largest u. s. banking firms. the crisis revealed a stark weakness in the capital and liquidity positions of many of our large banking organizations that left many of them incapable of dealing with financial stress and necessitated unprecedented government intervention. a primary focus of post - crisis financial reform has been strengthening capital and liquidity buffers at large banking institutions, which has bolstered the safety and soundness of these institutions and reduced systemic risk more broadly. in terms of liquidity, not only do our largest firms now have the right kind and amount of liquidity calibrated to their funding needs and to their likely run risk in stressed conditions, but they also are required to know where it is at all times and to ensure it is positioned or readily accessible where it is most likely to be needed in resolution. prior to the crisis, many of the largest firms did not even have a good handle on where their liquidity was positioned. for example, our largest banking firms have increased their holdings of high quality liquid assets from 12 percent of assets in 2011 to 20 percent of