term interest rates could be too high or too low relative to a level considered appropriate by the central bank. against this background, the bank of japan introduced " yield curve control, " in which long - term interest rates are explicitly set as an operating target. this is perhaps the first attempt to do so among major central banks. you may think that yield curve control is an ambitious project for a central bank. let me remind you, however, that major central banks that have been conducting asset purchases must have already faced the question of what shape and location of the yield curve would be appropriate for their policy goals. without answering this question, the central bank cannot reasonably specify the amount of asset purchases. in a recent post in his blog, ben bernanke, former chairman of the federal reserve, referring to discussions at the federal open market committee's meeting in october 2010, compared qe, in which the amount of government bonds to be purchased is decided in advance, with a peg for long - term interest rates. 3 in this comparison, dr. bernanke pointed out that, if the federal reserve pegged long - term interest rates, it might end up having to buy very large amounts of securities, giving rise to the risk of losing control of the balance sheet ; for this reason, the federal reserve decided to opt for qe rather than rate - pegging. ben bernanke ( 2016 ), " what tools does the fed have left? part 2 : targeting longer - term interest rates, " ben bernanke's blog, brookings institution, march 24. while i share such concerns, i have two responses to them. the first is that, in the new framework, the bank of japan will set the operating target for long - term interest rates at each monetary policy meeting. that means that it will facilitate the formation of the yield curve that is deemed appropriate by taking account of the economic, price, and financial conditions from time to time so as to provide a sufficient level of monetary accommodation in order to achieve the price stability target. the second is that the bank has already been conducting very large - scale government bond purchases and, in combination with a negative interest rate policy, has been fairly successful in controlling long - term interest rates. as shown in the " comprehensive assessment, " this combination has been exerting powerful downward pressure on long - term interest rates. with this in mind, i believe that there will be no significant changes in the management of the bank '

framework there were two major challenges to monetary policy in japan. to start with, despite unprecedentedly large - scale monetary easing, inflation expectation formation in japan is still adaptive to a large extent. that is, the expectations are formed in a backward - looking manner. in the wake of the substantial decline in crude oil prices since summer 2014, a reduction in the observed inflation has pushed down inflation expectations. the first challenge, therefore, is in terms of how to lift inflation expectations that had fallen once to an undesirably low level and re - anchor them at the target of 2 percent. the next issue concerns the link between the interest rate level and the effects of monetary easing. when short - and long - term interest rates were well in positive territory, a common understanding was that, so far as the impact on the economy was concerned, the lower the interest rates, the greater the monetary easing effects. however, it is now recognized that, when short - term interest rates are negative and long - term interest rates have fallen to extremely low levels, there could be side effects or costs that weaken the functioning of financial intermediation, which may reduce monetary easing effects. such observations lead us to the other challenge, which is to explore optimal levels and shapes of the yield curve that can maximize monetary easing effects on the economy and prices. as solutions to these challenges, the bank recently introduced the new monetary policy framework " qqe with yield curve control. " this consists of two major components : ( 1 ) an inflation - overshooting commitment and ( 2 ) yield curve control. let me talk about each of these in turn. ii. inflation - overshooting commitment i will start by talking about the inflation - overshooting commitment. there is a widespread consensus that anchoring inflation expectations is very important in achieving a price stability target set by the central bank. however, it has not been fully analysed, either theoretically or empirically, how inflation expectations are formed by the public and how they can be raised once they have been de - anchored and fallen to an undesirably low level. qqe introduced by the bank in 2013 aimed at changing people's perceptions of inflation through a regime shift in monetary policy by combining a strong commitment to achieving the price stability target and the significant expansion of the monetary base. as shown in the " comprehensive assessment, " this approach has produced positive results. in light of these achievements, the bank of japan further strengthened this approach recently with