increase in credit - risk spreads in the bond market, a tightening of credit standards at banks, the equity correction, and the retrenchment in high - tech investment. the latter four developments were, in part, a response to monetary policy tightening and the associated prospects of slower growth, but the magnitude of the responses were in each case out of proportion to the degree of tightening. the outsized responses in equity prices and high - tech investment presumably reflected an abrupt unwinding of pre - existing imbalances. such a process is often an important contributor to the severity of cyclical slowdowns. let me elaborate on the roles of productivity, equity prices and high - tech investment. the fate of these variables is, of course, very interconnected, and they have collectively played a dominant role both during the period of exceptional growth and the slowdown. structural productivity growth appeared to rise year after year, from the end of 1992 through the beginning of 2000. it was the continuing rise in the growth rate of productivity that led to sustaining the temporary bonuses that took the form of higher demand and lower inflation. once productivity growth stabilized, these bonuses were destined to dissipate, so the apparent stabilization of structural productivity growth in 2000 may have contributed to both the slower demand and to some upward pressure on inflation. the period of accelerating productivity was accompanied by a surge in equity prices – especially for high - tech firms – and a frenzy of high - tech investment spending to take advantage of new profitable opportunities. in each case, it appears – no doubt, more clearly in retrospect – that there were speculative excesses that would, at some point, be corrected. in such a circumstance, monetary policy could turn out to be a blunt instrument. it would have been an extraordinary achievement to fine tune a slowdown to prevent or unwind an imbalance between aggregate demand and aggregate supply without a risk of triggering an abrupt unwinding of these sectoral or market imbalances. monetary policy, therefore, had to be alert to the possibility that the slowdown would be more severe than sought and that policy might, in such a circumstance, have to quickly reverse direction. this is precisely what we have done. once demand slowed so sharply, the normal inventory cycle came into play. the inventory correction may, in this case, be sharper and shorter than usual. production in the " new economy ” can respond more quickly to signs of slower demand and emerging inventory building. but the slowdown has

financial institutions ’ profits. however, i think it is of notable significance that the longheld belief that nominal interest rates cannot be negative was overturned, and that the idea evolved into an actual policy option. the fourth approach is reducing real interest rates by influencing people ’ s inflation expectations, instead of by cutting nominal interest rates. in the case of japan in particular, where deflation has persisted and the deflationary mindset has become entrenched among people, it is necessary to re - anchor medium - to long - term inflation expectations by exerting influence on people ’ s expectations. this will require the central bank ’ s strong commitment to achieving the inflation target, clear and consistent communication to the public, and determined actions to realize the commitment. let me now explain the bank of japan ’ s monetary policy after the global financial crisis, while bearing in mind the four measures composing the evolution of monetary policy to overcome the zero lower bound that i just mentioned ( chart 4 ). in response to the collapse of lehman brothers in 2008, the bank immediately reduced short - term policy interest rates, as did other central banks. as the pace of economic improvement remained sluggish, the bank in october 2010 decided to introduce the comprehensive monetary easing policy. specifically, it reduced the target level of short - term interest rates to 0 to 0. 1 percent and committed itself to maintaining the virtually zero interest rate level “ until it judges that price stability is in sight. ” in addition, it established the asset purchase program, through which it provided longer - term funds at a fixed rate and purchased various financial assets such as japanese government bonds ( jgbs ), corporate bonds, and exchange - traded funds ( etfs ). as these measures show, in order to overcome the zero lower bound, the bank affected longer - term interest rates through jgb purchases and forward guidance, and started to compress risk premiums through purchases of corporate bonds and etfs. in terms of the four approaches that i explained earlier, the bank adopted the first two. 5 / 15 bis central bankers'speeches although the bank continued to provide accommodative financial conditions through measures such as an expansion of the asset purchase program and strengthening of forward guidance, this did not result in a significant improvement in economic activity and prices. thus, the bank newly introduced an extremely powerful policy package in april 2013 — namely, qqe. under this framework, the bank shifted the main operating target from interest rates to the monetary base,