12 months up through august 2012, the amount of lending increased by a total of approximately 15 trillion yen for financial institutions that saw a rise in their lending. going forward, if financial institutions manage to increase their lending more aggressively, the amount of funds that the bank can provide will rise accordingly. at present, the bank is in the process of making the necessary arrangements, and we plan to release the details of this facility before the end of the year and start its operation as soon as possible. the bank ’ s aggressive monetary easing, which consists of its virtually zero interest rate policy and its purchases of financial assets through the program, coupled with measures including the government ’ s intervention in the foreign exchange market, has fended off the yen ’ s appreciation to some extent. nonetheless, we have heard the opinion that the bank ’ s monetary easing is not enough because japan ’ s economy has yet to overcome deflation. this opinion often refers to the amount of “ money ” supplied by a central bank. looking at the monetary base – which is the amount of “ money ” supplied by a central bank, percentage point changes in its ratio relative to gdp since the lehman shock have been more or less the same as in europe and the united states, where the monetary base is thought to have been increased aggressively during this period ( chart 12 ). furthermore, as japan experienced its financial crisis much earlier than other economies, the ratio of the monetary base relative to gdp also started rising in earlier years and has now reached the highest level among the advanced economies. 2 now the question is, how can we further strengthen the effect of monetary easing? in order to answer this question, i would like to discuss the monetary transmission mechanism. this can be divided into two stages. the first stage is the transmission of monetary easing effects from the realm of monetary policy to the financial environment, where firms can raise sufficient funds at low costs on the back of monetary easing. the second stage is the transmission of effects from the financial conditions to economic activity and prices ; in other words, the extent to which firms and households actually take advantage of the accommodative financial conditions to increase their investment and spending ( chart 13 ). as for the first stage of the transmission, the effect of aggressive monetary easing has thoroughly permeated the financial environment, and extremely accommodative financial conditions have been achieved both in terms of interest rates and access to financing. if the effect of aggressive easing permeates the second stage of the transmission

masaaki shirakawa : path toward overcoming deflation speech by mr masaaki shirakawa, governor of the bank of japan, at a meeting with business leaders, nagoya, 26 november 2012. * * * introduction i am honored to be here today to speak and exchange views with business leaders from the chubu region. i would like to take this opportunity to express my deep gratitude for your cooperation with the bank of japan ’ s nagoya branch. today, i will start by touching upon economic developments at home and abroad, and then move on to explain the bank ’ s conduct of monetary policy. i will then discuss the economy ’ s path toward overcoming deflation. i. developments in overseas economies and in exchange rates considering that i have paid this region a visit every year just around this time in november, let me begin my talk by reflecting on developments in the economic environment surrounding japan ’ s economy over the past year, especially in overseas economies and exchange rates. to start with, i will outline developments in overseas economies. around this time last year, developments with respect to the european debt problem – the biggest risk factor for the global economy at that time – had been highly uncertain and nervousness in financial markets had been so strong that even a worst - case scenario – namely, the collapse of the euro zone – had been envisaged ( chart 1 ). in comparison with last year, the risk of the european debt problem triggering an extreme event such as a global financial crisis has subsided, thanks to progress with reinforcing the safety net including such moves as the european central bank ( ecb ) ’ s decision to launch a new government bond purchasing program and the inauguration of the european stability mechanism ( esm ). nevertheless, an adverse feedback loop among the fiscal balance, the financial system, and economic activity continues to operate in europe, particularly peripheral countries, and the effects have recently started to spill over to core countries as well. consequently, the european economy has entered a moderate recession phase, as evident in the fact that it has posted successive negative growth since the fourth quarter of 2011. meanwhile, the u. s. economy – its household sector in particular – has been undergoing recovery at a moderate pace. in terms of changes over the past year, it is a positive indication that housing investment appears to be bottoming out despite its continued low level ( chart 2 ). however, the situation regarding the “ fiscal cliff ” – the same issue as was raised a year ago – has