decline in credit risk premiums. various potential transmission channels of the quantitative easing were discussed among economists at the time the bank introduced the policy. one of these channels is the portfolio rebalance channel : as the proportion of safe assets such as the current account balances at the bank increases in the asset portfolios of financial institutions, they are expected to adjust their portfolios, typically by increasing holdings of riskier assets such as loans. looking back on the period under the quantitative easing policy, we are not yet sure whether this channel actually worked or not. the accommodative environment contributed finally to putting the economy back onto a solid recovery path. the year - on - year rate of change in the core cpi rose to the surface in october 2005 and turned positive the following month. under these circumstances, the bank decided to terminate the quantitative easing policy in march 2006. more specifically, the bank decided to change the operating target for money market operations from the outstanding balance of current accounts at the bank to the uncollateralized overnight call rate. under the new scheme, the bank currently encourages the uncollateralized overnight call rate to remain at effectively zero percent. during the period of the adjustment process, japanese firms have been innovating continuously to strengthen their competitiveness. they have also expanded the global supply - chain network with a particular emphasis on developing their strategic linkages with asian counterparts. meanwhile, the japanese banks have overcome the non - performing loan problem and are currently better positioned to respond to the demands for sophisticated financial services of the times. such revitalization of both firms and banks should improve the efficiency of the market mechanism, thereby enabling a better allocation of resources. 4. several questions to be discussed in what follows, let me raise several questions that i hope are discussed at this conference. first, how have financial markets functioned in the historically low interest rate environment? have any unexpected effects of the low interest rate policy been detected in the financial markets? second, has the interaction between financial markets and the real economy changed in a low interest rate environment? for instance, have the roles played by financial markets and asset prices in the transmission mechanism of monetary policy changed? third, what are the consequences of a prolonged low interest rate environment? in particular, does the low interest rate policy pose potential risks to both financial markets and the real economy? fourth, how can we evaluate the recent low interest rate policy from historical and international perspectives? for instance, can we derive policy implications by comparing

bis central bankers ’ speeches ( i ) the government succeeds in the implementation of the needed fiscal stimulus, including the reduction in arrears to contractors ; ( ii ) the central bank increases its intervention in the foreign exchange market as needed ; ( iii ) the business sector operates with the needed trust and confidence, avoiding the tendency to warehouse foreign exchange ; ( iv ) the banks accept the need for a larger reduction in interest rates and banking spreads ; and ( v ) where all the parties contribute to easing the industrial relations climate and generally helping to restore confidence. this is a tall order, but absolutely necessary. achieving medium term growth and stability presents even greater challenges, but the immediate reactivation in economic activity will boost confidence and provide the breathing space for this greater challenge. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches