gradually return to an increasing trend, and is likely to reach around the price stability target of 2 percent toward the end of fiscal 2014 through fiscal 2015. the bank considers that 2 percent in terms of the year - on - year rate of change in the cpi is the price stability target the bank should aim at. on this point, various concerns have been raised. among these, two are that “ daily life will become difficult if prices go up ” and “ only prices might increase without an increase in wages. ” for firms, there might be a concern that they cannot mark up output prices to the extent input prices have risen. in particular, as the consumption tax will be raised from next month, many might be worried about an increase in general prices. therefore, today, i would like to explain my views, focusing on why the bank aims at 2 percent inflation. i. problems of deflation let me start with confirming why deflation is problematic, by looking back at the past 15 years. in japan ’ s economy, deflation has continued for 15 years since the second half of the 1990s. deflation was not only a result of economic stagnation but also a cause that protracted bis central bankers ’ speeches economic stagnation. amid 15 years of deflation, behavior based on the recognition that prices would not rise or prices would moderately decline has been embedded in the economy, and that led to protracted economic stagnation. viewed from firms ’ side, under deflation, as they cannot raise the prices of their products and services, their sales and profits will not increase. therefore, firms will restrain labor costs and business fixed investment as much as possible. for households, as wages will not increase, consumption will be restrained. if households hold back consumption, firms will be forced to reduce the prices of their products and services in order to tap consumption. deflation also affects the investment decisions of firms. for firms to decide on business fixed investment, what matters is developments not in nominal but in real interest rates. if deflationary expectations are embedded, real interest rates, which are obtained by subtracting expected rates of inflation from nominal interest rates, remain high. namely, even with no change in nominal borrowing interest rates, expected profits will become less if a price decline is expected to continue, and the effective burden of repayment of borrowings will increase. in this situation, it is natural that firms ’ incentives for business fixed investment will wane. also, for households,

repair banks ’ condition by identifying and having the necessary corrective actions implemented where necessary. finally, the comprehensive assessment builds confidence by assuring all relevant stakeholders that banks are fundamentally sound and trustworthy. the ecb will conduct the comprehensive assessment in close cooperation with national authorities, and also with esrb and eba. the ecb will detail the design and strategy of the assessment exercise, monitor its execution, perform quality assurance as well as collect and consolidate the results and finalise and disclose the overall assessment. national supervisors execute the exercise at the national level, benefitting from local knowledge, but following common data requirements and methodology. as an example of the extensive methodology, the asset quality review phase 2 manual was published in march. the manual provides specific guidelines for all involved parties on the conduct of relevant steps of the exercise. the comprehensive assessment is indeed comprehensive. first we do a risk assessment addressing key risks in the banks ’ balance sheets, including liquidity, leverage and funding. after that an asset quality review is carried out examining banks ’ balance sheets based on information at the end of 2013. and finally, a stress test, done in collaboration with the eba, complements the asset quality review by providing a forward - looking view of banks ’ riskabsorption capacity under stress. the asset quality review has progressed and some details of its coverage have been released. approximately 135 000 loan books will be examined by the authorities. the loan file review covers both corporate and retail portfolios. it covers total banking book riskweighted assets ( rwa ) of approximately € 3. 7 trillion, representing 58 % of total credit riskweighted assets across the banks subject to the assessment. in addition, 29 banks with material trading book exposures are subject to a specifically tailored aqr of the trading book. the structure of the comprehensive assessment also clarifies the frequently asked question, how this assessment differs from previously conducted eu level stress tests? the key differences to my mind are as follows : • banks ’ risks and asset quality are assessed in a comprehensive manner at the banking union level. assessments are made applying common definitions, abolishing – or at least showing explicitly – any diverging national interpretations. • sufficient corrective measures can be guaranteed as the ecb in its supervisory role will have all the necessary supervisory powers. bis central bankers ’ speeches • quality of assessments is ensured not only by the ecb ’ s strict procedure for ongoing quality assurance, but also by the involvement of third party evalu