s inflation expectations have been anchored at a substantially low level of around 0 percent. we need to de - anchor such expectations, increase them to the price stability target of 2 percent, and anchor the expectations again at this level. how can this be achieved? i will discuss this next while looking back at the changes in economic activity and prices since the second half of the 1990s. bis central bankers ’ speeches b. changes since the second half of the 1990s economic and price developments, and their effects since the second half of the 1990s in retrospect, since the second half of the 1990s a series of events – such as banks ’ nonperforming - loan problems, the asian currency crisis, the lehman shock, and the great east japan earthquake – weighed strongly on japan ’ s economy. in addition, a variety of factors put direct downward pressure on prices. these included low - priced imports from emerging economies, firms ’ low - price strategies to counter intensifying competition stemming from deregulation, and a reduction in the wage level due to firms ’ increased reliance on nonregular employment. in response, the bank implemented a series of monetary easing policies such as the zero interest rate policy, the quantitative easing policy, and the comprehensive easing policy. thanks to these policies that stimulated the real economy, from time to time the economy began to head toward recovery. however, except for a period reflecting the effects of a surge in oil prices, these policies failed to put an end to the trend of a price decline. on the contrary, as deflation became protracted, deflationary expectations became entrenched, which made overcoming of deflation even more difficult, producing a vicious circle. once the tendency to act based on such expectations becomes entrenched among households and firms, change is not an easy task. in this way, by becoming prolonged, deflation became a challenge that was even more difficult to overcome. changes in the phillips curve let me explain the changes i have just mentioned by using the concept of the phillips curve ( chart 8 ). the phillips curve illustrates the relation between the output gap and the inflation rate. put simply, it shows that when the economy is strengthening with the labor market as well as the goods and services markets being tightened, prices tend to increase. in the phillips curve, the vertical axis depicts the inflation rate and the horizontal axis depicts the output gap. it is assumed that the relation of the two is an upward - sloping curve, that is, when the

to the evolution of central bank monetary policies and operations over the past fifty years by taking the experience of the bank of japan as an example. in considering these changes, i have realized once again the difficulty of reaching a universal definition for such a unique organization as a central bank. today, instead of trying further to precisely define the central bank, i would like to talk about the three points i always highlight regarding the roles of a central bank. bis central bankers ’ speeches first, the most important role of a central bank is to provide a stable financial environment. sustainable economic growth tends to be achieved in a stable financial environment, even if that is not always the case. second, a central bank is an organization that plays its role through banking services. the specialized knowledge required of a central bank is not only knowledge of macroeconomics, but the wisdom to cover a wide range of activities. what is especially important for central banks is practical knowledge related to the details of the circulation of money. borrowing the phrase of one central banker i respect, this kind of knowledge is akin to the knowledge required by a good plumber. third, a central bank is an organization that needs to learn constantly from the changes in the world. earlier, i referred to a stable financial environment. the specific elements from which a stable financial environment is constructed also change with time. when price stability is achieved, many economic entities gain the confidence to take more risk. and, as a result, the stability of the financial system is compromised. this paradox of price stability is a good example of the need for the central banks to stay vigilant and keep learning in a changing environment. the staff members from the bank of japan will now explain the current central bank policies and operations of the bank. we would also like to take this valuable opportunity to learn from your experience and to deepen the ties of cooperation with you. thank you for your attention. bis central bankers ’ speeches