in my remarks today, i have explained the transmission mechanism of the qqe and showed that economic activity has been moving in line with the developments envisaged under this mechanism. before closing, i wish to point out several issues that require attention. first, the qqe is intended to generate a decline in the expected real interest rates by lifting the inflation expectations of the public – particularly those of investors in asset markets. this decline in the expected real interest rates is a trigger for changes in asset prices of government bonds, stocks, and foreign exchange. such changes in asset prices will take place through investors ’ portfolio rebalancing and are expected to start shortly after the qqe ’ s implementation. these changes in asset prices will increase aggregate demand including consumption, investment in fixed assets – that is, business fixed investment and housing investment – and exports, and this increase in aggregate demand will lead to a pickup in production and employment. all these changes in economic activity, however, require some time before they gather momentum. that is because it takes some time for households as well as domestic and overseas businesses to ascertain whether or not changes in asset markets are merely a temporary phenomenon. once they feel confident that these changes are of a somewhat long - term nature, businesses will decide whether to expand their fixed investment and households will decide whether to increase spending and housing investment. likewise, overseas businesses will determine whether to increase their imports from japan. it has been less than 5 months since the bank introduced the qqe. it will take some more time before we start seeing persistent and steady pickups in prices and wages as a result of an increase in demand for goods and services, and of a rise in employment. while it will take some time, japan ’ s economy will improve, prices and wages will rise, and incomes for many households will increase for as long as the bank strenuously continues with the qqe. i would remind everyone that the qqe is a new phase of monetary easing that we have just entered. therefore i hope you will not jump to conclusions by saying that the recent pickup in prices attributes to a rise in energy prices on the back of the yen ’ s weakening – a typical story associated with “ bad inflation ” – or by grumbling about stagnant wages. again, the qqe is still in its early stages, and i hope you will be patient enough to see its effects permeate the economy. thank you. bis central

, mainly due to the increase in exports that followed a depreciation of the yen. recently, there has been an upward trend in external demand. in addition, inventory adjustment in some raw materials and semiconductor industries was almost completed. as a result, production, which had remained sluggish in the first half of 1996, started to grow at an accelerating pace, reflecting fully the increase in final demand. notably, the firm recovery in production is now generating a recovery in private demand, including business fixed investment and personal consumption. reflecting improvements in corporate sales and profits, the recovery in business fixed investment is spreading to a wider range of industries and to smaller firms than previously observed. indeed, according to the results of the november 1996 “ tankan - - short - term economic survey of enterprises in japan, ” business fixed investment for the smaller firms, which had been slow to improve, is expected to show a year - to - year increase in fiscal 1996 for the first time in five years. growth of personal consumption, the other mainstay of private demand, leveled off at one time in summer 1996, but resumed later in autumn, especially in consumer durables such as automobiles. the contributing factor to the moderate but steady recovery in personal consumption has been the improved income reflecting the favorable changes in employment conditions and wages that followed the increase in production. it must be borne in mind that the increase in demand ahead of the rise in the consumption tax rate scheduled for fiscal 1997 is contributing to the improvement in economic indicators, as in housing investment, and therefore these improvements need to be seen in this light. there has, however, recently been a notable change in economic developments compared to the first half of 1996. despite a gradual decrease in public - sector investment from the latter half of 1996, the virtuous circle - - in which increased production leads to increased private demand through improved corporate profits and employment income - - has clearly begun to operate. iii. uncertain factors regarding the economic outlook a. views of financial market participants turning from the bank of japan ’ s views on the current domestic economy, the issue of concern now is the future development of the economy. revitalization of economic activity usually brings about increases in corporate profits and employment income, which lead to improvements in business fixed investment and personal consumption. these improvements in turn lead to a further expansion in economic activity. however, developments in financial markets, such as stock prices and long - term interest rates, suggest that despite the increasing strength of the economic recovery