was introduced, is it working? as it turns out, there have been improvements in financial markets, economic activity and prices, and people ’ s expectations, and the qqe has been powerfully exerting its effects. let me point out some examples. bis central bankers ’ speeches in the financial markets, stock prices have risen by more than 30 percent since the beginning of the year. this substantially exceeds the rate of increase not only in europe, of around 13 percent, but also in the united states, of around 16 percent. on the real economy front, real gdp has marked high growth since the turn of the year of around an annualized 4 percent for two consecutive quarters. the unemployment rate has recently declined to the levels seen prior to the lehman shock of around 4 percent. people ’ s expectations have also changed. consumer confidence indicators clearly have tilted upward since around the end of last year. looking at business confidence indicators, according to the boj ’ s business survey, called the tankan survey, the diffusion index ( di ) for business conditions bottomed at minus 9 percentage points in the last december survey and has improved to plus 2 percentage points in the latest september survey – the same level as that in december 2007, prior to the lehman crisis. turning to price developments, expected inflation rates have increased as a whole, according to market indicators and various surveys. the break - even inflation rate ( bei ) has increased to close to 1. 7 percent, from around 0. 70 a year ago. in the opinion survey on the general public ’ s views and behavior conducted by the boj, in which consumers are asked their views on the inflation rate one year from now, the proportion of consumers who answered that prices would increase was just over 50 percent in the last december survey, but increased to above 80 percent in the september survey. in addition, the di for selling prices in the tankan survey, which is calculated based on a question firms were asked of developments in selling prices of their own products and services, have improved for large firms from minus 15 percentage points in the last december survey to zero in the september survey. looking at the observed inflation rates, the cpi inflation rate turned positive in june for the first time in 14 months, and accelerated to 0. 8 percent in august. as explained, stock prices have been rising and the real economy has been improving steadily. the inflation rate has turned positive and inflation expectations have risen. such improvements in economic activity, prices, and people

level in the range of 1 – 2 percent throughout most of the 2000s. real gdp grew at an annual average rate of 1. 5 percent between 2000 and 2007. in this manner, japan ’ s economy avoided falling into a deflationary spiral. second, however, japan ’ s inflation rates continued to slide, despite the various unconventional monetary policies pursued by the bank. in that sense, the bank ’ s past bis central bankers ’ speeches policies were not sufficient to lift japan ’ s economy out of deflation. so, what was lacking in those policies? in my view, two elements are worth noting. the first is the lack of a strong enough commitment to price stability. in hindsight, since the commitment in past policies was not sufficiently strong, the bank was unable to dispel the deflationary expectations that had taken hold. the bank was yet to introduce an explicit numerical price stability target at the time of quantitative easing ( qe ) between 2001 and 2006. instead, it introduced forward guidance under qe, stating that qe would be continued until the annual rate of change in the cpi ( excluding fresh food ) registered zero percent or above in a stable manner, but the threshold of zero percent was perhaps too low. the second element that had been lacking is policies that have a sufficiently large impact. when an economy falls into a deflationary equilibrium, then – because it is a situation of equilibrium – sufficient escape velocity needs to be provided to the economy to get out of it. to that end, policies need to have a large impact. the bank implemented policies that consisted of lowering short - term interest rates as close as possible to 0 percent and expanding the size of its balance sheet to close to 30 percent of nominal gdp, which back then was globally unprecedented in terms of scale. nevertheless, the impact provided by those policies proved insufficient to allow the economy to escape from its deflationary equilibrium. introduction of qqe based on this experience, the qqe policy introduced in april last year was designed to overhaul the past policies ( chart 5 ). qqe has the following two features. one feature is a strong and clear commitment to achieve price stability. specifically, the bank has committed itself to achieving the price stability target of 2 percent at the earliest possible time, with a time horizon of about two years. this does not mean, however, that the bank will end qqe in two years. the bank also committed itself to continuing with qqe as