interest rate generated by qqe helped stimulate potential demand for mortgage loans. conversely, an increase in housing prices caused by rising construction costs partially discouraged residential investment by ordinary households. nonetheless, let me stress that the economic growth rate for fiscal 2014 could have been even lower without qqe. corporate profits as well as the employment and income situation might have been less favorable than at the current level. qqe has brought negative real interest rates and promoted the following : ( 1 ) the wealth effect, for example through stocks and real estate ; ( 2 ) the diversification of financing sources for firms ; and ( 3 ) a correction of the yen ’ s excessive appreciation ( chart 4 ). these effects, in turn, have given rise to various positive developments by activating firms ’ fixed investment and pricing behavior, financial institutions ’ lending and investment behavior, individual investors ’ incentives to manage financial assets, and inbound tourism. therefore, although there were downward revisions to the bank ’ s economic outlook, i believe that the effectiveness of qqe should not be questioned. upward revisions of growth forecasts for fiscal 2015 and 2016 by contrast, the bank ’ s forecast on economic growth for fiscal 2015 was adjusted upward significantly from 1. 5 percent in the april 2013 forecast point to 2. 1 percent in the most recent forecast. the upward revision is natural since it reflects the adjustment process of returning from the bigger - than - expected decline in the previous year. in addition, as for reasons why degree of upward revision was particularly large in the latest january 2015 forecast, i personally view that the following four factors were incorporated : ( 1 ) improvement in corporate profits and the resultant greater active business fixed investment ( owing to a crude oil price drop and the lagged impact of the yen ’ s further depreciation since november 2014 ) ; ( 2 ) gradual recovery overseas ( owing to a crude oil price drop ) and the resultant positive effects on exports from japan ; ( 3 ) an increase in real income and resultant expansion of private consumption ( driven by a crude oil price drop and the postponement of the second round of the consumption tax hike ) ; and ( 4 ) expected positive effects from the government ’ s economic measures based on the supplementary budget for fiscal 2014. the most recent bis central bankers ’ speeches forecast on economic growth for fiscal 2016 was also revised upward to 1. 6 percent, partly because of a shift of the front - loaded increase in spending from fiscal 2015 to fiscal 2016 as a result of the post

it another way, financial institutions cannot take risks exceeding a certain level that is calculated based on the amount of capital they hold. given that no firm is guaranteed never to fail, some degree of risk is always attached to loans that financial institutions extend to firms. they are required to control the amount they lend so that the total amount of risk they take does not exceed the level permitted. if a bank's capital decreases as a result of it incurring a large amount of losses due to a decline in stock prices or a failure of a firm it has lent to, the total amount of risk the bank can take will decrease accordingly. in this case, the bank will become more cautious than before in extending loans that are accompanied by risk. from the standpoint of firms, loans will become less available. should this lead to a reduction in business operations at a large number of firms, overall economic conditions will deteriorate in consequence. some of these firms may go bankrupt due to a deterioration in their business conditions. if this occurs, banks'capital will decrease further due to resolution of the losses incurred through the failures of the firms the banks lent to. this will lead to a further tightening in banks'lending attitudes and bring about further failures and deterioration in economic conditions. thus, tighter lending attitudes resulting from decreases in capital lead to a deterioration in economic conditions, and this in turn brings about a further deterioration in economic conditions through further decreases in capital and tightening in lending attitudes. this vicious circle is the phenomenon described by the phrase " adverse feedback loop operating between financial and economic activity. " in addition to bank loans, which i have just used as an example, firms, especially large ones, sometimes acquire funds in the cp and corporate bond markets. in addition, in the case of small to medium - sized firms, they sometimes acquire funds from business partners and parent companies – so - called trade credits. investors that provide funds in the cp and corporate bond markets and firms that provide trade credits to other firms also cannot take excessive risks in order to maintain their financial soundness. in other words, an adverse feedback loop may be initiated not only through bank loans, but also through practically every channel of financial activity, including financial markets and trade credits. the current world economic downturn is to a considerable extent due to the adverse feedback loop operating between financial and economic activity. financial institutions in the united states and western europe, already faced with a substantial deterioration in their financial positions after the emergence of the subprime