financial system in japan has regained stability mainly because financial institutions have mostly resolved their nonperforming - loan problems, and as a result financial institutions'precautionary demand for liquidity has declined substantially. the year - on - year rate of change in the cpi has become slightly positive recently, and therefore the policy commitment has to a significant extent lost its influence on the formation of longer - term interest rates. thus, the stimulative effects of the quantitative easing policy on economic activity and prices are coinciding with the effects of short - term interest rates being at practically zero percent. the effects of monetary easing are being amplified by low interest rates maintained during the improvement in economic and price conditions. given this situation, the bank will thoroughly examine economic activity and prices, and decide a change of the policy framework appropriately according to the commitment based on the cpi. conclusion japan's economy continues to recover steadily. the current economic expansion has lasted four years, since january 2002, based on the cabinet office's reference dates of business cycles. this already makes it the third - longest expansion phase in the post - world war ii period. as for the outlook, the economy is likely to experience a relatively long period of growth, albeit at a moderate pace, and the bank will continue its close monitoring of developments. the bank will also continue to examine the state of the economy in each region thoroughly through such means as research conducted by its branches. the bank conducts monetary policy to realize sustainable growth of the economy through the pursuit of price stability. the bank is determined to firmly support japan's economy from the financial side to achieve sustainable growth with price stability by maintaining an accommodative financial environment, based on careful examination of developments in economic activity and prices.

direct effects of the consumption tax hike, the year - on - year rate of increase in the core cpi, which excludes volatile food, is likely to be around 1¼ percent for some time. thereafter, it is expected to reach the price stability target of 2 percent from the latter half of fiscal 2014 to fiscal 2015, as the economy continues to grow at a pace above its potential growth rate. based on such an outlook, the policy board has judged it appropriate to steadily pursue the qqe under its current guidelines of asset purchases. ii. price stability target and qqe a. price stability target as a flexible framework next, i will explain what we mean by the price stability target, introduced in january 2013 ( chart 3 ). bis central bankers ’ speeches under the qqe, the bank aims to achieve this target at the earliest possible time, with a time horizon of about two years. the policy framework of the price stability target is flexible, just like that adopted by major central banks overseas. specifically, monetary policy requires long and variable time lags before its effects permeate the economy, and thereafter prices. to achieve a sustainable growth path in the context of price stability, monetary policy needs to be flexible. in other words, we examine the current conditions and the outlook for economic activity and prices. we also analyze various risk factors including the accumulation of financial imbalances. we take account of all these developments when we decide on monetary policy. that is what i mean by being flexible. flexibility in monetary policy has been widely shared with other countries. particularly in the aftermath of the global financial crisis, major overseas economies have become increasingly attentive to the flexibility of monetary policymaking. from that viewpoint, the price stability target is by no means a rigid and superficial framework which calls for the inflation rate to reach 2 percent with surgical precision. it is a flexible and practical framework that accommodates the needs arising from economic developments. put differently, what the price stability target aims to achieve is not a situation in which only prices will rise. rather, it aims to achieve an environment in which the improvement of the overall economy results in higher wages and then higher prices. in my view, in such an environment, some degree of latitude to the price stability target – both on the upside and downside – is naturally required. furthermore, it is necessary to make an analysis from broader perspectives when assessing the extent to which the bank has come close to achieving the target. that includes examining the