toshihiko fukui : developments in japan ’ s economy and an overall review of the central bank ’ s conduct of monetary policy statement by mr toshihiko fukui, governor of the bank of japan, concerning the bank's semiannual report on currency and monetary control, before the committee on financial affairs, house of councillors and house of representatives, 1 - 2 november 2007. * * * introduction the bank of japan submitted its semiannual report on currency and monetary control for the second half of fiscal 2006 to the diet on june 8, 2007. i am pleased to have this opportunity to present an overall review of the bank's conduct of monetary policy. i. developments in japan's economy japan's economy is expanding moderately. exports have continued to increase due to the expansion of overseas economies. business fixed investment has also continued to trend upward against the background of high corporate profits. the positive effects of the strength in the corporate sector have been feeding through moderately into the household sector. although nominal wages per worker have been somewhat weak, employee income has been rising moderately with the increase in the number of employees. the positive effects of the strength in the corporate sector have also continued to be passed on via various other channels, for example, increased dividends. in this situation private consumption has been firm. with the rise in demand both at home and abroad, production has continued to be on an increasing trend. looking forward, japan's economy is likely to continue its sustained expansion with a virtuous circle of growth in production, income, and spending in place. however, instability in global financial markets stemming from the u. s. subprime mortgage problem continues, and there is uncertainty regarding global economic developments, for example downside risks to the u. s. economy. although overseas economies, taken as a whole, are likely to keep expanding as growth in economies other than the united states is likely to remain high, developments in global financial markets and the global economy continue to warrant attention. on the price front, the three - month rate of change in domestic corporate goods prices has been positive, mainly due to the rise in international commodity prices. the year - on - year rate of change in the consumer price index ( excluding fresh food ) has been around 0 percent. from a longer - term perspective, however, it is projected to continue to follow a positive trend as the output gap continues to be positive. as for financial conditions, the environment for corporate finance has

foreign demand increase in a well - balanced manner. iii. conduct of monetary policy let me now turn to the bank's monetary policy. at the monetary policy meeting ( mpm ) held in january 2013, the bank made a commitment to achieving the price stability target of 2 percent in terms of the year - on - year rate of change in the cpi at the earliest possible time, and in april of that year, it decided to introduce quantitative and qualitative monetary easing ( qqe ) as a necessary measure to underpin this commitment. in january 2016, the bank decided to introduce qqe with a negative interest rate in order to pursue monetary easing in terms of the three dimensions of quantity, quality, and the interest rate. furthermore, in september 2016, the bank conducted a comprehensive assessment of the developments in japan's economic activity and prices as well as policy effects since the introduction of qqe, and decided to introduce qqe with yield curve control as a means of strengthening the two previous policy frameworks i just mentioned. the framework of qqe with yield curve control consists of two major components. the first is yield curve control in which the bank facilitates the formation of short - and long - term interest rates that are considered most appropriate for maintaining the momentum toward achieving the price stability target, taking account of developments in economic activity and prices as well as financial conditions. specifically, at present, in the guideline for market operations, the bank sets the short - term policy interest rate at minus 0. 1 percent and the target level of the 10 - year japanese government bond ( jgb ) yields at around 0 percent, conducting jgb purchases so as to achieve this target level. the second component is an inflation - overshooting commitment in which the bank continues with the monetary easing framework, aiming to achieve the price stability target, as long as it is necessary for maintaining that target in a stable manner. on this point, the bank makes clear that it will continue expanding the monetary base until the year - on - year rate of increase in the observed cpi ( all items less fresh food ) exceeds 2 percent and stays above the target in a stable manner. as shown in the comprehensive assessment, i consider that the main factor that hampers achieving the price stability target of 2 percent is as follows. in the course of the bank's attempt to raise inflation expectations toward 2 percent, observed inflation rates declined due to a variety of exogenous factors such as a substantial