financial crisis in the 1990s. the bank ’ s response next, i will talk about the bank ’ s response. the bank has enhanced monetary easing since march, implementing three measures as follows. the first is the special program to support financing mainly of firms. the total size of this program is about 110 trillion yen. specifically, the bank decided to purchase cp and corporate bonds within about 20 trillion yen, which is equivalent in size to a quarter of the japanese market. in addition, it introduced funding measures of about 90 trillion yen to encourage lending by financial institutions. these include a scheme in which the government takes the credit risk of lending by financial institutions to small and medium - sized firms and the bank provides funds to those financial institutions on favorable terms. this represents a case of cooperation between the government and central bank to support corporate financing, while making their respective 1 / 2 bis central bankers'speeches roles clear. the second is an ample provision of yen and foreign currency funds. as for the yen funds, the bank decided to purchase a necessary amount of jgbs without limit, with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level. regarding foreign currency funds, the bank has provided a large amount of u. s. dollar funds based on cooperation with five other major central banks. the third is active purchases of etfs and j - reits. the aim is to prevent firms ’ and households ’ sentiment from deteriorating through volatility in financial markets, thereby supporting positive economic activity. in addition to the enhancement of monetary easing, the bank has made regulatory responses in order to ensure financial system stability. based on an international agreement, the full implementation of the finalized basel iii standards has been deferred by one year, and banks have been encouraged to use their capital and liquidity buffers. moreover, the bank announced with the financial services agency in april an easing of regulation on the leverage ratio requirement. financial system stability provides support for corporate financing and is also a prerequisite for monetary policy to exert its maximum effect. the bank ’ s response has already had considerable effects. japan ’ s financial system has maintained stability on the whole, and the lending stance of financial institutions has been active. under these circumstances, bank lending for may registered the highest increase in the last 30 years, and cp and corporate bond issuances have increased significantly. tension in financial markets has abated. the bank will continue to support financing mainly of firms and

gauge of this i consulted successive rba annual reports. throughout the 1960s, the level of the cpi was plotted in charts. the first time it appeared in changes was in the report for 1969 / 70. let me be very clear at the outset, and i will repeat this more than once in what follows, that australia is not experiencing deflation now, and is unlikely to do so any time soon. the issue is an international one much more than a domestic one, but given its prominence it is worth some consideration. 1. what is deflation, and why would it be a problem? deflation is a generalised and persistent decline in most, if not all, prices for goods and services. more likely than not this, if it occurred, would be accompanied by declines in prices for many real assets and pressure for, even if not the actuality of, declines in wage and salary incomes. a situation where we observe declines in the prices of some products does not qualify as deflation in this sense. it is nearly always the case that prices for some things are falling, while prices for other things are rising. were we to look at the 100 - odd expenditure classes in the australian consumer price index, we would find that about 30 of them record a decline in any particular quarter. this has been a feature of the low inflation era since 1990. even in the high inflation period of the 1970s and 1980s, it was normal to see 10 to 15 per cent of expenditure classes recording price declines in any given quarter. this kind of relative price change is the price mechanism at work in the market economy, and is to be distinguished from general deflation where prices of most or all things decline. a simple but useful working definition of deflation, then, is when the prices of enough goods and services decline to cause aggregate price indexes like the cpi to record a fall. deflation of that general nature was once a not - uncommon event. for example, in the nineteenth century, it was normal to think of a relatively stable average price level over fairly long periods, but with noticeable fluctuations around the mean over periods of some years – with periods of inflation being followed by periods of deflation. in australia, up to 1914, deflation occurred in almost half the years for which we have data, an outcome not dissimilar to those seen in other countries ( see following table ). it was really only in the last few decades of the twentieth century that we became accustomed to the idea