stability target, the bank committed to continuing with the qqe as long as it is necessary for maintaining the target in a stable manner. the bank clearly committed to achieving the 2 percent price stability target, with a time horizon of about two years in mind, and also to continue with the unprecedented large - scale monetary easing of the qqe as long as it is necessary for maintaining the target in a stable manner. we considered that such a combination would raise people ’ s inflation expectations in a forward - looking manner. we also assumed that, as a result, if actual prices start to increase, that would affect inflation expectations in a backward - looking manner as well. and with an increase in the number of people who believe in the bank ’ s commitment, the forwardlooking influence would also be strengthened. let me be more specific about the transmission mechanism of the qqe. three transmission channels are assumed : containing interest rates and risk premiums through massive asset purchases, portfolio rebalancing, and raising inflation expectations. what i would like to focus on in particular is the channel starting from a rise in inflation expectations. as a rise in inflation expectations shifts the phillips curve upward, under the same level of economic activity, the actual inflation rate will be higher. in addition, a rise in expected rates of inflation, if nominal interest rates rise by less than that, will lower real interest rates and stimulate economic activity. that is, if the bank can contain nominal interest rates through massive asset purchases while raising expected rates of inflation, it can lower real interest rates. in the case of central banks in the united states and europe, as inflation expectations have already been anchored at the price stability target, they have no choice but to reduce nominal interest rates in order to lower real interest rates. however, in the case of japan, as inflation expectations have been below the level of the price stability target, there is room for lowering real interest rates through raising inflation expectations. a decline in real interest rates will stimulate business fixed investment and consumption, and raise the actual inflation rate by narrowing the output gap. once prices start to rise, this will further induce a rise in inflation expectations, which in turn work on real interest rates to decline again. in such a manner, a virtuous cycle starting from a rise in inflation expectations will take hold. bis central bankers ’ speeches iii. how far have we come? so, how far have we come toward the goal of achieving the 2 percent price stability target

to the actual year - on - year rate of change in the cpi. given that the lifting of the zirp in the previous year had given rise to the impression that the bank had a deflationary bias, the bank, in order to counter this impression, ventured to issue forward guidance with little room for discretion. as a result, the qe policy flattened the yield curve more than the zirp had done, and in this regard exerted substantial effects. in pursuing qe, the bank gradually increased its target for current account balances from initially about 5 trillion yen ( about 1 percent of nominal gdp ) to about 30 to 35 trillion yen ( about 6 to 7 percent of nominal gdp ) in january 2004 while consistently taking the economic situation into account. the economy subsequently recovered and the year - on - year rate of change in the cpi turned positive, meeting the condition set out in the forward guidance – that qe would be pursued until the annual rate of change in the cpi ( excluding fresh food ) registered zero percent or above in a stable manner. in this situation, the bank ended qe in march 2006 and raised the policy rate to 0. 25 percent in july the same year. japan ’ s economy continued to recover for some time after the termination of qe, but experienced a severe negative shock stemming from the global financial crisis in 2008 and the year - on - year rate of change in the cpi fell into negative territory again. central banks ’ responses to the global financial crisis and the bank ’ s cme during and after the global financial crisis, central banks promptly and flexibly addressed liquidity shortages in financial markets by providing massive liquidity through various measures. in addition, given that the malfunctioning of financial systems exerted significant adverse effects on economic activity, a number of central banks adopted unconventional monetary policy measures as seen in the launch of massive purchases of government bonds by the fed and the boe. against this background, the bank started comprehensive monetary easing ( cme ) in october 2010. as the name suggests, the bank purchased a comprehensive range of assets – not only government bonds but also credit products such as cp and corporate bonds, equity financial products such as exchange - traded funds ( etfs ) and japan real estate investment trusts ( j - reits ) – with the aim of directly lowering part of the yield curve up to three years and at compressing various risk premiums. furthermore, in february 2012, almost at the same time that the fed