haruhiko kuroda : two years under qqe speech by mr haruhiko kuroda, governor of the bank of japan, to the yomiuri international economic society, tokyo, 15 may 2015. * * * introduction it is a great honor to be invited to this meeting hosted by the yomiuri international economic society today. the last time i addressed this meeting, in april 2013, was immediately after the bank of japan ’ s introduction of quantitative and qualitative monetary easing ( qqe ). two years have passed since then, and the economic and price situation has improved substantially under qqe. although the year - on - year rate of increase in the consumer price index ( cpi ) had declined, due mainly to the effects of the substantial decline in crude oil prices since last summer, and recently has been about 0 percent, the underlying trend in inflation has steadily been improving, as i will explain later in more detail. today, i will review the developments in japan ’ s economic activity and prices during the past two years and explain the effects qqe has been exerting. on this basis, i will touch on the outlook and the bank ’ s monetary policy, referring to the april 2015 outlook for economic activity and prices ( hereafter the outlook report ). i. effects of qqe transmission mechanism of qqe the bank, in introducing qqe two years ago, envisioned the following transmission mechanism of qqe as a main channel ( chart 1 ). namely, ( 1 ) inflation expectations will be raised through a strong and clear commitment to achieving the price stability target of 2 percent and through large - scale monetary easing to underpin the commitment, ( 2 ) downward pressure will be put on nominal interest rates across the entire yield curve through massive purchases of japanese government bonds ( jgbs ), thereby ( 3 ) decreasing real interest rates. the decline in real interest rates will stimulate private demand, which will lead to an upturn in the economy, improving the output gap. then, the improvement in the output gap, together with a rise in inflation expectations, will increase inflation rates. as people experience actual price increases, their inflation expectations will rise further. meanwhile, on the financial front, asset prices – such as stock prices and foreign exchange rates – reflect these developments in economic activity and prices or else incorporate future developments. moreover, due to the decline in jgb yields, coupled with the bank ’ s purchases of exchange

other hand, the improvement in economic activities has not stimulated corporate demand for external funds, since firms ’ cash flow is increasing in parallel with a recovery in profits. moreover, firms continue to reduce debts as part of their balance - sheet restructuring measures. as a result, credit demand in the private sector has continued to be basically stagnant. in view of this, the underlying tone of private banks ’ lending seems to remain sluggish although its year - on - year rate of decline slowed in april for the second consecutive month. issuance of corporate bonds and cp has been steady. money stock ( m2 + cds ) grew faster in april compared with the previous month on a year - on - year basis. in this financial environment, corporate financing conditions are easing, and the lending attitude of financial institutions is perceived by firms as less severe. it continues to warrant careful monitoring how these favorable developments in the corporate financing environment will affect economic activities.