pressure across the entire yield curve ; i. e., not only short - term interest rates but also long - term interest rates including 10 - year jgbs, as well as super - long - term interest rates of jgbs with maturities of 20 years or longer. by referring to some specific data, let me briefly explain how the intended effects have been spreading so far. yields on 10 - year jgbs already had been lowered to a record low level before the bank decided to introduce “ qqe with a negative interest rate, ” and thus the entire yield curve has been pushed down to an extremely low level ( chart 9 ). at the same time, inflation expectations have been rising on the whole from a somewhat longer - term perspective. according to various survey - based indicators, inflation expectations generally have been raised by about 0. 5 percentage point under qqe ( chart 10 ). the decline in the nominal interest rate and the rise in inflation expectations suggest that the real interest rate has been largely pushed down. in fact, after the introduction of qqe, the real interest rate has remained in negative territory. thus, as i have mentioned, the real interest rate, having declined to the record low level, stimulated domestic demand, resulting in a moderate recovery in japan ’ s economy and an improvement in the underlying trend in inflation. zero lower bound of interest rates and framework for “ qqe with a negative interest rate ” the newly introduced “ qqe with a negative interest rate ” maintains and reinforces the basic mechanism of qqe, which has produced its intended effects. for a long period of time, a common understanding has made us believe that the nominal interest rate cannot fall below the zero lower bound. however, at present, some central banks in europe, including the european central bank ( ecb ), are in fact implementing negative interest rate policies. the following two points were considered to be reasons why the nominal interest rate cannot turn negative. first, financial institutions ’ profits would be squeezed if a negative interest rate were applied to their current accounts at the central bank. if a negative interest rate were to massively squeeze financial institutions ’ profits – which i would view as an extreme case – functioning of financial intermediation could be hampered and, as a result, the intended effects of monetary easing would wane. second, a larger negative interest rate would incentivize financial institutions to withdraw more cash from their current accounts at the central bank in

- related goods 8. 0 4. 1 0. 4 - 1. 1 - 3. 6 2. 2 0. 8 - 5. 1 5. 0 - 0. 7 capital goods 12. 3 5. 3 - 2. 3 - 0. 2 - 3. 6 - 1. 5 1. 2 - 9. 1 4. 1 1. 7 real exports 6. 4 2. 2 - 1. 6 0. 5 - 1. 7 0. 1 2. 1 - 4. 5 4. 1 0. 9 notes : 1. nies, asean, etc. includes other asian countries such as india and bangladesh. 2. motor vehicles and related goods includes motor vehicles, parts of motor vehicles, and power generating machine. it - related goods includes computers and units, telecommunication machinery, semiconductors, audio and visual apparatus, and medical and optical instruments. capital goods includes metalworking machinery, construction machines, electrical power machinery, semiconductor production equipment, and ships. 3. figures for 2019 / q3 are those of july. source : bank of japan, " developments in real exports and real imports. " chart 9 business fixed investment ( ratio to nominal gdp ) - 10 - 5 ratio of nominal private non - resi. investment to nominal gdp ( left scale ) production capacity di ( right scale ) cy 2005 note : production capacity di shows figures for large enterprises of all industries. sources : cabinet office, " national accounts " ; bank of japan, " tankan ( short - term economic survey of enterprises in japan ). " excessive capacity insufficient capacity diffusion index of " excessive capacity " minus " insufficient capacity, " % pts., reversed % developments in business fixed investment plans ( large manufacturing firms ) y / y % chg. overall manufacturing y / y % chg. chart 10 general - purpose, production, and business oriented machinery average ( fy 2013 - 2018 ) fy 2018 fy 2019 mar. survey june survey sept. survey dec. survey forecast actual mar. survey motor vehicles y / y % chg. june survey sept. survey dec. survey forecast actual forecast actual basic materials y / y % chg. mar. survey june survey sept. survey dec. survey forecast actual note : figures include software investment and exclude land purchasing expenses. source : bank of japan, " tankan. " mar. survey june survey sept. survey dec. survey developments in business fixed investment plans ( large nonmanufacturing firms ) y / y %