central bankers ’ speeches a. growth potential of japan ’ s economy now let us look at the potential growth rate of japan ’ s economy, which represents – from the supply side – the pace of growth that is consistent with the economy ’ s growth potential. according to the bank ’ s estimates, the rate has recently been in the range of 0 to around 0. 5 percent, and thus remains at a low level. the potential growth rate is unlikely to rise markedly in the short term, considering, for example, that the pace of firms ’ accumulation of capital stock remains moderate, although business fixed investment has turned to an increasing trend. on the other hand, the bank ’ s estimates of the output gap in japan have generally been at the neutral level of around zero recently. the output gap is also at a favorable level on an international comparison using the estimates made by the organisation for economic co - operation and development ( oecd ). labor market conditions remain very tight. of course, such estimates are subject to a considerable margin of error. however, if, under these circumstances, the economy continues to grow at a pace well above the potential growth rate, supply - side constraints such as labor shortages will become more pronounced. in my view, stable economic and price conditions are most likely to be maintained, as japan ’ s economy will probably continue growing moderately at a pace that does not diverge considerably from the potential growth rate. b. the decline in crude oil prices and the global economy the decline in crude oil prices facilitates income transfers from oil - producing countries to oilconsuming countries. the net effect of the decline will likely tend to be positive in terms of the global economy as a whole due to the difference in price elasticity of demand between these countries. nevertheless, financial markets often shift to a “ risk - off ” mode. this is probably because the decline in crude oil prices is associated with signs of oil - producing countries ’ currency depreciation and of the heightening in their economic and fiscal risks. another reason seems to be that market participants are still uncertain about the extent of positive effects stemming from the crude oil price decline. in measuring the extent of these effects, the degree to which the decline in crude oil prices will benefit the u. s. economy warrants attention. in this regard, the decline in such prices might not push up private consumption by as much as anticipated due to structural changes in the united states such as an increase in energy efficiency. the fall in crude

in advanced economies that conduct unconventional policy are still finding a way to achieve better communication with the markets. the bank, for its part, needs to continue to facilitate effective communication while paying close attention to the experiences of the other economies. f. combined use of two policy tools it is my understanding that an unconventional policy such as the asset purchase policy implemented under qqe is effective as a temporary tool to generate upward momentum in economic activity and prices and affect the direction of such momentum under the zero lower bound on nominal interest rates. on the other hand, a conventional interest rate policy can be regarded as a usual, fine - tuning tool that is used when it is time to encourage economic activity and prices to reach desirable levels. in a situation where the unconventional policy has already been effective to a reasonable extent, accommodative financial conditions are starting to further strengthen as policy effects generated by maintained zero interest rates are gradually added to the effects of qqe. on the other hand, precisely because the unconventional policy is a new policy measure with a short history, its side effects in general could have many unknown parts. moreover, it would probably take considerable time for monetary policy to be normalized with the unwinding of the unconventional policy – the main component of which is the asset purchase policy. thus, a forward - looking policy stance is required to achieve the smooth normalization of monetary policy while maintaining financial market stability. taking these factors into account, if developments in economic activity and prices continue to steadily follow an improving trend, i think that it will be necessary in the future to examine the option of gradually starting to shift the focus of monetary policy conduct from the asset purchase policy to the zero interest rate policy, in view of the role of the two policy tools as well as the balance of their positive effects and side effects. bis central bankers ’ speeches