which consists of a combination of short term interest rates, reserve requirement ratios and interest rate corridor. we seek to use these instruments in the right bis central bankers ’ speeches combination in order to cope with both inflation and macro - financial risks. the monetary policy stance in this framework is not only determined by the path of policy rates, but as a mixture of all the policy instruments, as i just mentioned. just like the conventional inflation targeting framework, the policy is forward looking and contingent on economic outlook. the course of the policy mix in the forthcoming period will depend on the factors affecting price stability and financial stability. in sum, we are going through a period in which central banks policies have to be creative in dealing with the “ new normal ”. however, it is also important to consider country specific features in designing these strategies. in our part, we believe that a lower policy rate and a wider interest rate corridor combined with higher required reserve ratios may serve as an effective policy mix in dealing with rapidly increasing macro imbalances driven by short term capital inflows. thank you. bis central bankers ’ speeches

, firms and households will be concerned about the future and become more likely to reduce their expenditure. it is for this very reason that maintaining fiscal sustainability is vital to realizing sustainable growth of the economy. related to this, i am often asked why japan finances itself smoothly and long - term yields remain low and stable, despite the fact that japan has a large fiscal deficit and the ratio of government debt outstanding to gdp is extremely high compared to other countries. there bis central bankers ’ speeches are two reasons. first, there is confidence in the market that japan has the will and ability to eventually address fiscal consolidation. the second reason is that investors anticipate that yields have been stable thus far and will continue to be so. it may be hard to believe at this juncture, but in the euro area, every country issued bonds at the same level as germany up until a few years ago. of these two reasons, i believe that the first one is more convincing as an explanation of why a severe fiscal situation does not lead to higher bond yields in the market. in essence, confidence is firmly embedded in the minds of market participants that japan has the will and ability to address fiscal consolidation. nonetheless, such strong will and ability eventually have to be proven by the track record. from a medium - to long - term perspective, it is particularly important to maintain the market ’ s confidence by steadily making progress toward fiscal consolidation. at the same time, in the making of monetary policy, it is important to maintain the market ’ s confidence that a central bank conducts its policy with the aim of achieving sustainable growth with price stability. in that context, let me emphasize that the bank of japan ’ s purchase of government bonds will never be intended to be construed as financing government debt. in terms of improving the fiscal balance, one often hears the view that raising the nominal growth rate is important. i find this to be rather misleading. whether or not the fiscal balance improves rests heavily on how the rise in nominal growth rate is achieved. when the nominal rate rises as a result of higher inflation, tax revenue increases, but at the same time, expenditure also increases due to higher wages and costs. until now, the government bonds already issued at higher rates have been refinanced by those newly issued at lower rates, and the total interest payments of government bonds have been reduced. going forward, however, not much from such a refinancing effect can be counted on ( chart 19 ). under such circumstances