by affecting market prices, which is what the comprehensive monetary easing policy has been aiming for. this means encouraging a decline in longer - term interest rates and a reduction in risk premiums and thereby ensuring financial conditions that allow firms and households to raise funds at low cost. there seems to be a range of views in financial markets currently on the feasibility of the 2 percent price stability target. if any doubt arose in the markets over the bank ’ s stance on achieving the target, this could reduce the policy effects. therefore, with a view to avoiding such a situation and continuing to clearly show the bank ’ s strong determination to achieve the target, it is important to steadily conduct asset purchases under the program in a sustainable manner and thereby produce the intended policy effects. in this regard, i will discuss three points : steadily increasing the amount outstanding of the program ; strengthening coordination with the government and maintaining fiscal consolidation ; and communication to the public to gain understanding of the bank ’ s policy intention. f. issues regarding the operation of the asset purchase program first, let me mention an issue concerning the payment of interest under the complementary deposit facility, or the payment of interest on excess reserve balances of financial institutions ’ current accounts at the bank. this issue needs to take into account the fact that undersubscription – that is, aggregate bids falling short of the bank ’ s offers – has been occurring frequently in the fixed - rate funds - supplying operation against pooled collateral since the turn of the year. generally speaking, as the degree of monetary easing is enhanced, financial institutions ’ demand for liquidity will be met sufficiently, thereby reducing their need for funds provided by the bank ; consequently market participants will have a reduced incentive to submit bids for the bank ’ s market operations. moreover, the bidding activity for market operations is affected by not only the supply and demand conditions of market participants ’ funds but also various events and speculation in the markets. therefore, bis central bankers ’ speeches with regard to financial institutions ’ current accounts held at the bank, the balances of which change along with the bank ’ s asset purchases, careful deliberation is necessary in discussing the lowering or the abolishment of the payment of interest on excess reserve balances of the current accounts. since such a move would affect financial institutions ’ incentive to hold excess reserves at the bank, the costs and benefits should be assessed while taking into account the sustainability of asset purchases under the program. second, it should be noted that the remaining maturity of

line that represents the potential growth path it is supposed to follow. this owes to the fact that it is in a vicious cycle under which a decline in aggregate demand on the back of a continued fall in prices – that is, a state of deflation – leads to a further fall in prices. in order to revitalize the economy, which has fallen into this vicious cycle of deflation and a decline in aggregate demand, bold monetary easing – the first arrow – is effective and imperative as a means of stopping the continued fall in prices and bringing economic activity to the level that should have been achieved. this represents the thinking behind the bank ’ s current monetary easing policy. it is exactly what i have been emphasizing as a researcher for a number of years. as i said before, it will take some time until the effects of the first arrow ( monetary policy ) permeate the economy. it is for this reason that the effects of the second arrow ( fiscal policy ) will first materialize, and as the effects of monetary easing strengthen, the actual economic growth path will approach the potential growth path shown as the dotted line in slide 2. in contrast, the third arrow ( growth strategy ) plays a role of raising the potential growth path depicted by the dotted line. in other words, while monetary policy and fiscal policy are the policies to restore economic strength from its temporary decline to being in a sound state, the growth strategy is meant to raise the capabilities of the economy itself. for japan ’ s economy to achieve long - term growth, this growth strategy is a key to success. ii. what is “ quantitative and qualitative monetary easing ”? now, i would like to focus my speech on today ’ s main theme : the first arrow, which is the monetary easing policy the bank has been conducting. on january 22, 2013, the bank newly introduced the “ price stability target ” of 2 percent in terms of the year - on - year rate of change in the consumer price index ( cpi ). furthermore, the bank decided on april 4 to enter a new phase of monetary easing both in terms of quantity and quality in order to achieve that target at the earliest possible time, with a time horizon of about two years. this is the bold monetary easing policy called “ quantitative and qualitative monetary easing ” ( hereafter qqe ). i would now like to explain, as plainly as possible, the key features of the monetary easing that the bank has been conducting. however,