kiyohiko g nishimura : a tale of two programs in the early resolution of the deflation problem speech by mr kiyohiko g nishimura, deputy governor of the bank of japan, at a meeting with business leaders, niigata, 5 december 2012. * * * introduction i am privileged and honored to be here today to exchange views with administrative and business leaders in niigata prefecture. i deeply appreciate your support and cooperation in taking part in interviews and surveys conducted by our niigata branch. the information from these interviews and surveys is invaluable for the bank of japan in grasping japan ’ s financial and economic developments and conducting monetary policy. what is more, we are delighted to share with you information – not only on what is happening in japan but also around the globe – on various occasions, including events at branches like the opportunity we are enjoying today. i would like to express my sincere gratitude and also ask for your continued cooperation. today i will be talking about the early resolution of the deflation problem and the bank ’ s two programs. in the first half of my talk, let me outline financial and economic developments since the summer. in the latter half, i will explain the bank ’ s basic thinking on monetary policy conduct, focusing on its two programs : the asset purchase program, the total amount of which the bank at the end of october decided to increase for the second month in a row ; and the loan support program, which it decided to newly establish. i. developments in overseas economies deceleration in overseas economies becoming more severe looking at developments in overseas economies since the second half of 2011, the negative impact of the european debt problem has spread globally through the effects on trade and business sentiment. as a result, economic activity in many countries and regions, especially in the manufacturing sector, has remained in a deceleration phase. every april and october, the bank releases the outlook for economic activity and prices ( hereafter, the outlook report ), which presents policy board members ’ assessment of economic activity and prices based on their forecasts. in addition to the semiannual outlook report, the bank also releases interim assessments in january and july that present the bank ’ s revised forecasts. the interim assessment in july 2012 listed uncertainty regarding overseas economies as one of the risk factors for japan ’ s economy, and frankly speaking, my impression is that these risks actually materialized within a short period of time since this summer. specifically, risks related to

. outlook for japan ’ s economy based on the aforementioned developments in overseas demand, exports and industrial production are expected to continue decreasing and japan ’ s economy as a whole to remain relatively weak for the time being. with the economy weakening somewhat, the bank judged it appropriate to undertake additional monetary easing and at the monetary policy meeting on october 30 decided to further enhance its monetary easing for the second month in a row, which i will elaborate on shortly with regard to the policy decisions. the bank believes that together with the cumulative effects of earlier policy measures and the effects of the government ’ s efforts to strengthen japan ’ s growth potential, the latest decision to implement monetary easing will prevent the economy from deviating from its course of returning to a sustainable growth path with price stability. as overseas economies gradually emerge from the deceleration phase, exports and industrial production are expected to start increasing and the economy as a whole to strengthen as spending activity gains momentum. in the october 2012 issue of the outlook report, the bank ’ s median projection for japan ’ s annual real gdp growth rate is 1. 5 percent for fiscal 2012, 1. 6 percent for fiscal 2013, and 0. 6 percent for fiscal 2014. this projection takes into account the front - loaded increase in demand prior to the consumption tax hike and the subsequent decline. excluding these effects, the projected growth rates for fiscal 2013 and 2014 would be around 1 – 1. 5 percent. this outlook entails a number of uncertainties and there are both upside and downside risks. under the current circumstances, however, we should be particularly mindful of the downside risks. specifically, close attention needs to be paid to the possibility that a further prolonged deceleration in overseas economies may delay the recovery in exports and industrial production, thus exacerbating the negative effects on domestic demand. next, i would like to discuss the outlook for the cpi. excluding the direct effects of the consumption tax hike on prices, the year - on - year rate of change in the cpi is expected to hover around 0 percent for the time being and start rising gradually thereafter reflecting the improvement in overall economic activity, such as increases in corporate profits and employment as well as a pickup in wages. the median projection of the year - on - year rate of change in the cpi in the october issue of the outlook report is – 0. 1 percent for fiscal 2012, 0. 4 percent for fiscal 2013, and 0. 8 percent for fiscal 2014, excluding the direct effects of