it is necessary for maintaining that target in a stable manner. it will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate. the transmission channels of qqe are as follows. first, the purchases of financial assets will exert influence on long - term interest rates and risk premia of asset prices. second, a portfolio rebalancing effect, in which the investment behavior of financial institutions and institutional investors changes by increasing lending and / or shifting their portfolios to risk assets. third, the clear commitment to achieving the price stability target at the earliest possible time and the continuation of massive purchases of assets are expected to drastically change the expectations of markets and economic entities. through these channels, qqe will stimulate private demand and contribute to raising prices by improving the aggregate supply and demand balance and by raising inflation expectations. such conduct of monetary policy by the bank will support the positive movements in economic activity and financial markets, contribute to a rise in inflation expectations, and lead japan ’ s economy to overcome the deflation that has lasted for nearly 15 years. the bank will continue to conduct monetary policy as appropriate. bis central bankers ’ speeches

toshihiko fukui : an overall review of the bank of japan ’ 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, tokyo, 24 july 2003. * introduction * * the bank of japan ( hereafter, the bank ) submitted its semiannual report on currency and monetary control for the second half of fiscal 2002 to the diet in june 2003. i am pleased to have this opportunity to present an overall review of the bank ’ s conduct of monetary policy. today, i would like to make some remarks on the bank ’ s view of recent economic and financial developments and on the thinking behind our recent conduct of monetary policy. i. developments in japan ’ s economy economic activity remains virtually flat. private consumption continues to be weak due to the severe employment and income situation. on the other hand, business fixed investment is on a gradual recovery trend, albeit showing some fluctuations, reflecting the improvement in corporate profits. net exports are virtually flat. looking at the economic outlook, it is expected that the uptrend in exports and production will gradually resume, and this in turn will initiate the momentum for an economic recovery. this reflected expectations that growth rates in overseas economies will accelerate in the second half of 2003 partly due to diminishing uncertainty over the situation in iraq and severe acute respiratory syndrome ( sars ). the june tankan ( short - term economic survey of enterprises in japan ) released by the bank at the beginning of july 2003 showed that corporate profits were projected to continue their uptrend and also confirmed that business fixed investment was on a recovery trend. however, the recovery in domestic demand is likely to remain modest for some time, since excessive labor input and debts continue to exert downward pressure. as for the environment for exports, there continues to be substantial uncertainty about the recovery of the u. s. economy, while on the domestic front, developments in the financial system and the financial and capital markets continue to require close monitoring. regarding prices, consumer prices are projected to continue falling at the current moderate pace for the time being due to the following factors. first, the weakness in demand, technological innovation, and the streamlining of distribution channels continue to exert downward pressure on prices. second, imports of low - priced consumer goods are still increasing, although only very gradually. developments in financial