stability target, the bank committed to continuing with the qqe as long as it is necessary for maintaining the target in a stable manner. the bank clearly committed to achieving the 2 percent price stability target, with a time horizon of about two years in mind, and also to continue with the unprecedented large - scale monetary easing of the qqe as long as it is necessary for maintaining the target in a stable manner. we considered that such a combination would raise people ’ s inflation expectations in a forward - looking manner. we also assumed that, as a result, if actual prices start to increase, that would affect inflation expectations in a backward - looking manner as well. and with an increase in the number of people who believe in the bank ’ s commitment, the forwardlooking influence would also be strengthened. let me be more specific about the transmission mechanism of the qqe. three transmission channels are assumed : containing interest rates and risk premiums through massive asset purchases, portfolio rebalancing, and raising inflation expectations. what i would like to focus on in particular is the channel starting from a rise in inflation expectations. as a rise in inflation expectations shifts the phillips curve upward, under the same level of economic activity, the actual inflation rate will be higher. in addition, a rise in expected rates of inflation, if nominal interest rates rise by less than that, will lower real interest rates and stimulate economic activity. that is, if the bank can contain nominal interest rates through massive asset purchases while raising expected rates of inflation, it can lower real interest rates. in the case of central banks in the united states and europe, as inflation expectations have already been anchored at the price stability target, they have no choice but to reduce nominal interest rates in order to lower real interest rates. however, in the case of japan, as inflation expectations have been below the level of the price stability target, there is room for lowering real interest rates through raising inflation expectations. a decline in real interest rates will stimulate business fixed investment and consumption, and raise the actual inflation rate by narrowing the output gap. once prices start to rise, this will further induce a rise in inflation expectations, which in turn work on real interest rates to decline again. in such a manner, a virtuous cycle starting from a rise in inflation expectations will take hold. bis central bankers ’ speeches iii. how far have we come? so, how far have we come toward the goal of achieving the 2 percent price stability target

present, japan ’ s financial system has been maintaining stability and emerging economies in asia have become more resilient due partly to an accumulation of foreign reserves and an establishment of safety nets. in addition, japan ’ s employment situation is far more favorable than that in 1997. taking these points into account, the bank believes that, while japan ’ s economy will temporarily decline immediately after the consumption tax hike, it will continue to grow above its potential growth rate as a trend with a virtuous cycle among production, income, and spending being maintained. concluding remarks as i have mentioned, so far, with the qqe steadily exerting its intended effects, japan ’ s economy has been following a path toward achieving the 2 percent price stability target as expected. of course, we are only halfway there and will steadily pursue the qqe. as the economy is associated with upside and downside risks, we will examine them and make adjustments as appropriate in order to achieve the 2 percent price stability target. by firmly continuing with such policy, i am convinced that we can achieve the 2 percent price stability target and overcome deflation. in the past 15 years, japan was not sleeping because it wanted to. it was only that, even if one person or one firm wanted to take on new challenges, rewards meeting such challenges could not be expected under a macroeconomic environment of persistent deflation. with the qqe and the government ’ s various initiatives, we have unlocked this “ fallacy of composition ”. therefore, japanese firms that originally were equipped with excellent technologies and human capital have started to take on new initiatives again, and the economy and prices have changed dramatically. we should not let this trend be reversed. to this end, we are making efforts with strong resolution. the day that japan ’ s economy can contribute more and more to the global economy is at hand. bis central bankers ’ speeches