. while inflation during the bubble period was relatively mild, japan ’ s economy had been brought to the verge of falling into a deflationary spiral in the 1990s. the deflation we observed at that time was largely the result of the bubble economy emerged in the late 1980s. such an experience suggests that we as the central bank should aim at price stability which supports medium to long - term sustainable growth, not price stability at a particular point in time. in this context, even if measured inflation is stable, we need to promptly alter interest rates once we judge that the risk of damaging sustainable price stability has become higher. according to this criterion, we have not, to our regret, sufficiently succeeded in maintaining price stability in japan since the bubble period. so far, i have mainly described the lessons for monetary policy derived from our experience during the period when the bubble emerged. of course, we also need to learn from the experience after the bursting of the bubble. it may be too early to summarize the experience and draw lessons, but i am sure we will learn quite a lot from the discussion at this conference. it is true that there is yet another major factor behind worldwide disinflation. it is the revolutionary progress of information technology, which we may perhaps call a new industrial revolution, and the resulting improvement of productivity. to find answers to what is price stability and an appropriate monetary policy in the face of rapid disinflation due to higher productivity, are difficult but positive challenges. in conclusion, i sincerely hope that through fruitful discussion at the conference, both those from academic circles and central banks will learn more, share the fruit, and make use of the wisdom obtained for the future conduct of monetary policy.

which led to extremely bullish expectations. in this regard, we think it is not sufficient to understand the bubble solely in terms of the rise in asset prices such as property and equity prices. in the study i mentioned, the bubble economy is defined as a combination of the rapid increase in asset prices, the expansion of monetary aggregates, and the overheating of economic activity. and, japan ’ s economy did indeed experience such developments from 1987 through 1990. a number of factors were intertwined in the background of such euphoria, and monetary easing was certainly one of them. monetary easing was a necessary condition for the emergence of the bubble, and to that extent should be held responsible. but, in our defense, i have to say that if we had tried to prevent the emergence and expansion of a bubble by monetary policy alone, we would have had to raise interest rates to levels which could not be justified because of the relatively stable prices at the time. this is one of the difficulties we face in dealing with a bubble. the next question is : in what respect was monetary policy responsible for the emergence and expansion of the bubble? it is true that we had maintained low interest rates for a relatively long period, even after the summer of 1988 when the economy was clearly on a recovery path, and allowed unfounded expectations to be embedded in the market and society that such low interest rates would continue for a considerable period. we should take it seriously that this was undeniably one of the driving forces behind the expansion of the bubble. what should be done to avoid repeating such an experience? we hear a variety of suggestions : for example, “ the bank of japan should have paid more attention to the movement of money supply or the rise in asset prices, ” and “ it has made a mistake by putting too much emphasis on the foreign exchange rate in the conduct of monetary policy ”. unfortunately, these are reflections and lessons with the benefit of hindsight, and we cannot fully use them as a practical guideline for making policy on a real time basis. we need a more pragmatic approach. from such a viewpoint, the most significant lesson that we should keep in mind is the importance of evaluating risks to the economy at an early stage, and of dealing with them in a preemptive manner. as i have said, it would not have been possible for monetary policy alone to have prevented the bubble from emerging. however, if we conducted monetary policy in a preemptive manner by taking