credibility in monetary policy becomes enhanced ( chart 5 ). bis central bankers ’ speeches preventing hyperinflation about the bank ’ s policy, some demonstrate concern that when the time comes for the bank to stop monetary easing, it might be difficult to do so due to pressure from financial markets or the government, and that eventually leads to inducing hyperinflation. the adoption of inflation targeting also is effective against such concern. the reason for that is that the inflation targeting policy is a device to hold a specific numerical target for the future inflation rate and make a commitment to achieving a situation that generates neither inflation above the target rate nor deflation. though the inflation targeting policy has often been discussed in japan as a measure to overcome deflation, it was originally adopted in countries like new zealand in the 1980s that suffered high inflation. i would like you to understand that, in case the economy should overheat and the inflation rate should rise well above the 2 percent price stability target, the bank has already made a commitment to taking appropriate measures in line with the framework of inflation targeting policy. i should stress that, in line with the mission stipulated in the bank of japan act, the bank will conduct monetary policy based on its judgment and responsibility while facilitating communication with the government ( chart 5 ). ii. aim of the qqe and the current situation of japan ’ s economy so far, i have explained the price stability target of 2 percent in terms of the year - on - year rate of change in the cpi ; namely, the so - called inflation targeting policy and the thinking behind that. now, i will talk about the contents and effects of the qqe, which was introduced as a policy to achieve the 2 percent price stability target, by also taking into account the current state of japan ’ s economy. a. what is the qqe? the qqe consists of two pillars ( chart 6 ). the first pillar is the commitment under which the bank will achieve the price stability target of 2 percent as soon as possible. the bank has made a clear commitment that it “ will achieve the price stability target of 2 percent at the earliest possible time, with a time horizon of about two years ”. the second pillar is to engage in actions that embody the commitment specified in the first pillar. as exemplified by the phrase “ quantitative and qualitative monetary easing ”, those actions are to increase the “ quantity ” of the bank ’ s balance sheet and change the “ quality ”

masaaki shirakawa : way out of economic and financial crisis – lessons and policy actions speech by mr masaaki shirakawa, governor of the bank of japan, at japan society, new york, 23 april 2009. * * * introduction good afternoon, ladies and gentlemen. first of all, i would like to thank both japan society and the institute of international bankers for giving me the opportunity to appear before such distinguished guests. i also appreciate the warm introduction by mr. rhodes. the global economy is suffering through the crisis of an exceptional scale. many countries are struggling with the consequences of the global credit excess accumulated in the period of what we used to call “ great moderation ”. how to extricate our economies out of this plight is a top priority for governments and central banks all over the world. in these unusual circumstances, japan ’ s crisis episode almost a decade ago is drawing renewed attention. japan went through a boom - and - bust cycle from the late 1980s to the beginning of this century. throughout the 1990s, japan ’ s economy was caught in a prolonged stagnation. japan also experienced a systemic financial crisis. because of these, japan ’ s 1990s is often referred to as the “ lost decade ”. a “ lost decade ” is a memorable and captivating phrase, although not to my liking for the reasons i will discuss later. in fact, the background of japan ’ s economic slump during the 1990s was intensely debated in and outside japan. in those discussions, japan ’ s “ lost decade ” was often considered as uniquely japanese. but when it comes to falling economic activity and a weakening financial system, there are amazing similarities between japan ’ s experience in the 1990s and what the us has been through since the summer of 2007. and this leads some to argue that the us might be entering its own version of the “ lost … not necessarily decade but something else ”. with these in mind, i would like to structure my discussion into three parts. in the first part, i will talk about the similarities between japan ’ s previous crisis and the present us difficulties. however, it is not my intention to lecture you on what the us should do at this juncture. this is because no two crises are identical and because japan itself is also mired in a severe economic downturn now. in the second part, i would like to revisit japan ’ s crisis experience from a broader perspective so that we can draw lessons in a multi - dimensional manner.