to talk about the conduct of monetary policy. in april this year, the bank committed to achieving the 2 percent price stability target at the earliest possible time, with a time horizon of about two years, and introduced the qqe to underpin the commitment. specifically, it would increase the monetary base at an annual pace of about 60 – 70 trillion yen and double the monetary base in two years. in order to do so, it would purchase japanese government bonds ( jgbs ) so that the amount outstanding of jgb holdings would increase at an annual pace of about 50 trillion yen ( chart 12 ). while the chart shows the outstanding amounts of the monetary base and jgb holdings as of end - 2013 and end - 2014, these are projected amounts under the current policy and do not suggest in any way a time limit of the policy conduct. as i will mention later, the bank will continue with the qqe, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining the target in a stable manner. the effects of the qqe are expected to carry through the economy via several different routes, and the most important of these is to lower real interest rates. to be specific, first of all, by committing to achievement of the 2 percent price stability target at the earliest possible time and announcing the continuation of a new phase of monetary easing into the future to underpin that commitment, the bank aims to drastically change people ’ s expectations and raise inflation expectations. second, it will put strong downward pressure on nominal long - term interest rates through massive purchases of jgbs. consequently, real interest rates could be lowered if the extent of a pick - up in nominal rates can be contained within the extent of a rise in inflation expectations. and the decline in real interest rates is expected to have the effect of stimulating business fixed investment and household spending. for the last eight months, our endeavor on this front has been successful. according to surveys on households and economists, inflation expectations seem to have been rising on the whole ( chart 13 ). by contrast, long - term rates have remained stable at a low level of around 0. 6 percent in japan despite the rise in long - term interest rates in other advanced economies ( chart 14 ). therefore, real interest rates have been declining. under such stimulative effects, japan ’ s economy has been recovering moderately and the year - on - year rate of change in the cpi has turned positive.

investment turning to the corporate sector, to achieve an economic recovery accompanied by a virtuous cycle among production, income, and spending, it is critical that an increase in corporate profits lead to an increase in business fixed investment. corporate profits have been recovering, due partly to a correction of the past yen appreciation ( chart 8 ). business fixed investment has been resilient in the nonmanufacturing sector, and there also are signs of improvement in the manufacturing sector, which has been lagging ( chart 9 ). going forward, business investment is likely to follow a moderate increasing trend, reflecting an improvement in corporate profits as well as effects of monetary easing. in the context of investment profitability, profitability from business fixed investment is likely to improve and monetary easing effects are likely to strengthen, reflecting a rise in the rate of return on capital due to economic recovery together with declining real interest rates under the qqe. in addition, reflecting past restraints on firms ’ investment, pent - up demand in business fixed investment is likely to surface ( chart 10 ). furthermore, firms ’ medium - to long - term growth expectations are likely to rise moderately, due partly to the positive initiatives to strengthen competitiveness and growth potential, such as the government ’ s regulatory and institutional reforms and various tax reduction measures, as well as firms ’ restructuring efforts. given such an environment, business fixed investment is more likely to increase as the level of economic activity further elevates. bis central bankers ’ speeches looking back, amid nearly 15 years of deflation, firms have been accumulating cash in order to prepare for the worst by, for example, containing business fixed investment relative to cash flow ( chart 11 ). as a result, firms ’ cash at hand has reached 230 trillion yen, which is almost 50 percent of nominal gdp. given the deflationary economy, it seems rational for a firm to increase its cash at hand as a relatively better investment ; however, as a result of a firm not effectively using precious cash, japan ’ s economy as a whole has been deprived of vitality. in an economy that has overcome deflation, it will be better, unlike in the past, to effectively use cash in the form of business fixed investment, research and development, and staffing, rather than to save it. i expect firms to gauge such a change in environment as a business opportunity that will lead them to take positive economic actions. iii. conduct of monetary policy lastly, i would like