, the recent signs of an increase are encouraging. based on various indicators related to inflation expectations of households, firms, and market participants, the boj judges that long - term inflation expectations are generally on a moderate rising trend ; however, whether this trend continues should be closely monitored, as these indicators show some different movements. it is clear that, since the qqe adoption, japan ’ s economy has shown positive signs of moving out of deflation ( chart 2 ). some firms seem to be increasingly confident about raising their sales prices by providing innovative products and services and thereby tapping demand. an increasing number of households appear to be enjoying employment and nominal income growth. transforming the public ’ s deflation - oriented mindsets and their resultant risk - averse economic behavior will take some time, but positive developments are gradually but steadily spreading in the economy. going forward, monetary policy should continue to support the transformation process and economic recovery. the government ’ s growth strategy to strengthen the potential of japan's economy combined with firms ’ initiatives mean that it is possible to first achieve the 2 percent price stability target and to subsequently sustain the 2 percent inflation in a stable manner. the expression “ sustain the 2 percent inflation in a stable manner ” is considered equivalent to the idea of stabilizing longterm inflation expectations at around 2 percent. in other words, in such a situation, inflation of around 2 percent would be realized as a medium - term average, as observed in other advanced economies. bis central bankers ’ speeches c. unconventional monetary policy under the zero interest rate lower bound in the face of the zero lower bound on nominal interest rates, the four central banks have actively conducted “ unconventional ” monetary easing measures such as ( 1 ) large - scale purchase of various financial assets, ( 2 ) forward guidance over the future monetary policy stance, ( 3 ) longer - term liquidity provision facility, ( 4 ) long - term conditional lending, and ( 5 ) a negative interest rate charge on reserves ( chart 3 ). in what follows, i will briefly touch on the current initiatives taken by these four central banks. measure ( 1 ) : large - scale purchase of various financial assets the federal reserve, the boj, and the boe have performed large - scale asset purchase operations to exert downward pressure on their longer - term interest rates that remain in positive territory despite the policy rate reaching nearly zero. this policy is sometimes referred to as quantitative easing. while sovereign bonds are the major assets purchased, the federal

rate stability was never an issue and the strong presence of the euro in malta ’ s currency basket had also fostered convergence in interest rates. in fact, the interest rate criterion had been met long before eu accession. fulfilling the inflation criterion was not considered an obstacle either, as the inflation rate had been generally below the eu reference value, and the upward risks were largely related to the impact of the vat increase planned for january 2004. although inflation continued to exceed the eu limit for most of the period from the second half of 2004 until the autumn of 2006, this mainly reflected the introduction of measures aimed at aligning energy and fuel prices more closely with market rates at a time of spiralling oil prices. malta is totally dependent on oil, not only for electricity generation but also for water production. against this background, the authorities had two options : either to use the fact that malta did not meet the fiscal criteria to maintain the status quo and delay the implementation of sensitive reforms, with the risk of undermining growth prospects ; or to use the adverse impact of globalization on malta ’ s current account and the vulnerability of the fixed exchange rate regime to highlight the urgent need for a faster pace of reform, while holding out the promise of the expected benefits of the euro. the authorities chose the latter approach, including a rather ambitious programme of fiscal consolidation and a unilateral commitment to maintain the maltese lira / euro exchange rate at the central parity rate in erm ii. this appeared a natural way to buttress the economy ’ s long record of exchange rate stability, though it was also dictated by the need to counter harmful speculation at the time about the level of the exchange rate. three years after eu accession, that bold decision appears to have paid off. economic growth rose to 3. 3 % in 2005 and 2006, and is expected to stay around that level ; the unemployment rate stabilised, then eased slightly ; and fdi flows, which have always been important, strengthened further. the gap between productivity growth and wages narrowed to the point that unit labour costs are now increasing negligibly or falling, depending on the measure used. in 2006 the fiscal deficit ratio dropped below the 3 % reference value for the first time in several years, with the structural balance net of temporary measures shedding around 3. 7 percentage points since 2003. the debt ratio also trended downwards and is expected to fall below the 60 % limit by 2009. as the base effect of the energy price hikes