policy. the bank recognizes that japan ’ s economy is faced with the extremely important challenge of emerging from deflation and returning to a sustainable growth path with price stability. based on this recognition, the bank has been doing its utmost as the central bank, using a three - pronged approach consisting of ( 1 ) strong monetary easing, ( 2 ) ensuring stability in financial markets, and ( 3 ) providing support to strengthen the foundations for economic growth. today, i would like to explain the bank ’ s pursuit of strong easing through comprehensive monetary easing and the support for strengthening the foundations for economic growth to address the medium - to long - term issues faced by the japanese economy. a. pursuing strong monetary easing : the comprehensive monetary easing policy with regard to its pursuit of strong monetary easing, the bank has reduced its policy interest rate twice since the lehman shock and, by increasing longer - term funds provision to financial institutions through new funds - supplying operations, the bank has been influencing directly longer - term interest rates such as 3 - month and 6 - month rates. as a result, market interest rates have been stable at extremely low levels and firms ’ funding costs have been declining. however, at the monetary policy meeting held on october 4 and 5, 2010, it was judged that the economic growth rate was likely to be somewhat lower than the projection presented in the july 2010 interim assessment, reflecting the slowdown in the u. s. economy since summer 2010 and the effect of the appreciation of the yen on business sentiment. it was also agreed at the meeting that, in view of the downside risks to the economic outlook, it had become more likely that the return of japan ’ s economy to a sustainable growth path would be delayed compared to what had been projected earlier. in this context, what particularly caught my attention was the results of the september 2010 tankan ( short - term economic survey of enterprises in japan ) released by the bank. although i had anticipated that firms ’ view of future business conditions had deteriorated to some extent due partly to the decrease in demand following the expiry of government measures to boost demand, the extent to which it had deteriorated was larger than i had expected. the bank has repeatedly stated that it will continue to consistently make contributions as the central bank so that japan ’ s economy will overcome deflation and return to a sustainable growth path with price stability. therefore, the members of the policy board, myself included, thought that the time had come for the bank to express this stance more clearly

interest rates receded at a brisk pace between summer and autumn 1996. in these circumstances, the long - term government bond yield has moved at about 2. 3 - 2. 4 per cent since the end of november 1996, but has recently declined to reach a record low of around 2. 2 per cent. with respect to bank lending rates, the short - term prime lending rate has remained at a record low level of 1. 625 per cent since september 1995. the long - term prime lending rate was lowered three times by a total of 0. 8 percentage points since september 1996 in response to developments in the long - term interest rates, and has been moving at the record low of 2. 5 per cent since december 1996. in these circumstances, short - term and long - term average contracted interest rates on new loans and discounts have moved at near record low levels. on the stock exchange, the nikkei 225 stock average plummeted temporarily between the end of 1996 and the beginning of 1997, reflecting the market ’ s concerns about japan ’ s economic outlook and balance - sheet problems. it has since picked up somewhat. in the foreign exchange market, the yen depreciated to reach ¥124 - 125 against the u. s. dollar temporarily in february 1997 owing to such factors as the interest rate differentials between japan and the united states. recently, the yen has moved at around ¥122 - 123 as concerns about the rapid appreciation of the u. s. dollar strengthened somewhat in the market. meanwhile, the yen has been appreciating against the deutsche mark since mid - february and recently moved at around ¥72 - 73.