’ speeches 4. multi - faceted challenges and unconventional monetary policy the consequences of japan ’ s prolonged balance sheet adjustment under population ageing described so far lead us to a number of multi - faceted challenges. the first challenge is that of cyclical - stabilization : ensuring a return to sustainable growth with price stability, when the policy rate is near zero and longer - term risk - free rates are also very low. in japan ’ s case, this also means overcoming deflationary pressures. the second challenge is to enhance the growth trend, or strengthen the foundations for growth. in other words, the challenge is to raise long - term growth prospects, especially in domestically - oriented growth. this should be done by solving the coordination failure in banking and capital markets described above. the third challenge is to avoid causing problems in national debt management. we should design and execute carefully measures to cope with the first and the second challenge, taking appropriate account of the current national debt situation as explained before, as well as general economic conditions. to tackle the first and the second challenges, the bank of japan instituted its growth foundation strengthening facility ( gfsf ) in june of last year and adopted comprehensive monetary easing ( cme ) in october. to meet the challenge of “ cyclical - stabilization ”, the first part of the cme changed the guidance for the policy rate from 0. 1 % to the range between 0 and 0. 1 %, making clear the bank ’ s virtually zero - interest rate policy ( vzirp ). for the second part of the cme, the bank clarified its policy duration commitment : the bank will continue its vzirp until it judges price stability to be in sight on the basis of the policy board members ’ understanding of price stability. with policy board members ’ announced forecasts for two years ahead, this is similar to “ forecast targeting ” though not specific in numbers. the third part of the cme is the asset purchase program, which is also designed to meet the cyclical - stabilization challenge. its aim is to influence downward longer - term rates. the outright purchase of jgbs with remaining maturity of 1 – 2 years and t - bills is to reduce the term - premiums of risk - free rates, and the purchase of cps and corporate bonds is to reduce both term - premiums and riskpremiums. the scheme to provide 3 - month funds at the overnight rate already instituted was aimed at lowering rates longer than the overnight rate, and has

. yen ratio to total assets, % large enterprises ( left scale ) small and medium - sized enterprises ( left scale ) ratio to total assets ( large, right scale ) ratio to total assets ( small and medium, right scale ) fy - end 85 note : based on the financial statements statistics of corporations by industry, annually. excluding " finance and insurance. " large enterprises are defined as enterprises with a capitalization of 1 billion yen or more, and small and medium - sized enterprises are defined as enterprises with a capitalization of less than 1 billion yen. source : ministry of finance. chart 10 qqe with yield curve control yield curve control inflation - overshooting commitment inflation rate 1. 2 % 1. 0 0. 8 2 % 0. 6 0. 4 jgb yield curve short - term policy interest rate " minus 0. 1 percent " target level of the long - term interest rate " around zero percent " 0. 2 0. 0 - 0. 2 - 0. 4 expansion of monetary base continues source : bloomberg. 0 1 2 3 4 5 6 7 8 9 10 15 20 year residual maturity chart 11 fiscal conditions in japan amount outstanding of government debt fiscal balance and primary balance ratio to nominal gdp, % points y / y % chg. acceleration in the pace of fiscal austerity ( decline in fiscal deficit ) ratio to nominal gdp, % ratio to nominal gdp, % - 1 - 1 - 2 - 2 - 3 - 3 gross government debt ( left scale ) fiscal balance ( y / y chg., left scale ) - 4 primary balance ( y / y chg., left scale ) - 5 - 6 fy 08 - 4 - 6 note : the primary balance is boj staff calculations. sources : cabinet office ; imf, etc. net government debt ( right scale ) - 5 real gdp ( right scale ) cy 08 chart 12 fiscal conditions in the euro area amount outstanding of government debt fiscal balance, primary balance, and structural balance y / y % chg. ratio to nominal gdp, % points acceleration in the pace of fiscal austerity ( decline in fiscal deficit ) - 1 - 1 - 2 - 2 - 3 fiscal balance ( y / y chg., left scale ) - 3 - 4 primary balance ( y / y chg., left scale ) - 4 - 5 gross government debt ( left scale ) cy 08 note : the structural balance is the year - on - year rate of change in the