haruhiko kuroda : re - anchoring inflation expectations via “ quantitative and qualitative monetary easing with a negative interest rate ” remarks by mr haruhiko kuroda, governor of the bank of japan, at the federal reserve bank of kansas city economic symposium “ designing resilient monetary policy frameworks for the future ”, jackson hole, wyoming, 27 august 2016. * * * accompanying charts can also be found on the bank of japan ’ s website. introduction it is always a great pleasure to speak at the economic policy symposium here in jackson hole. i would like to thank ms. esther george, president of the federal reserve bank of kansas city, for inviting me to this panel. over the past two decades, japan found itself in several economic difficulties, such as prolonged deflation, declining potential growth, several financial crises, and structural impediments arising from a rapidly aging population and dwindling labor force. given such experiences, i stress one observation in thinking about the resilience of monetary policy framework ; that is, in the long run, low inflation and low nominal interest rates are most likely to coexist. under such a circumstance, central banks have very little latitude for cutting policy rates due to the existence of the zero lower bound of nominal interest rates. in other words, the resiliency of monetary policy – more precisely, conventional or standard monetary policy – is considerably eroded. soon after i took office in march 2013, the bank of japan introduced quantitative and qualitative monetary easing ( qqe ) to overcome mild but protracted deflation. qqe has two key elements that enable the bank to move beyond the previous monetary policy measures. the first is the bank ’ s strong and clear commitment to achieving the price stability target of 2 percent at the earliest possible time, which is underpinned by a large - scale monetary easing, thereby drastically converting the deflationary mindset among people and raising inflation expectations. the second is to put downward pressure on the entire yield curve through massive purchases of japanese government bonds ( jgbs ), financed by an equally massive increase of the monetary base ( chart 1 ). these two elements together have reduced real interest rates and thus have produced strong easing effects. in october 2014, qqe was expanded in both quantitative and qualitative terms. subsequently, in january 2016, it was augmented by adding a third dimension of negativity in nominal interest rates, as “ qqe with

of qqe shows that real interest rates declined significantly, reflecting a rise in inflation expectations. but observed declines in jgb nominal yields appeared to be not so large until qqe with a negative interest rate was deployed, partly because nominal yields were already at low levels when qqe started three years ago. so, why did adding a negative interest rate to qqe produce the marked reaction of the entire yield curve? by introducing qqe with a negative interest rate, the marginal deposit rate of the current accounts at the bank declined by just 20bps, from plus 10bps to minus 10 bps. the resulting spillover to interest rates with longer maturities was considerably large compared with the experiences of the european economies. a natural question we need to address is : what creates the difference in the size of “ multipliers, ” so to speak? in other words, what factors could determine the size of decline in longer - term yields per unit change in the interest rate applied to current accounts at the central bank? the question remains to be answered. hypothetically, a multiplier could have been smaller or gone negative. that is, in response to an introduction of nirp, yields with longer maturities can increase, reflecting some rises in long - term inflation expectations. however, this was not the case for japan or for most european economies deploying nirps. one common observation was a bull - flattening of the yield curves. in theory, declines in term premiums bis central bankers ’ speeches along with longer maturities and possible downward revisions to a future monetary policy path can account for such bull - flattening. while both remain as possible factors to explain the observed broad downward shifts of the yield curves, focusing on a future monetary policy stance subject to the zero bound can provide a plausible interpretation. namely, suppose that market participants had been expecting that the central bank ’ s strong easing stance would continue for a lengthy period of time, and as a result, latent interest rates were much lower than the observed interest rates. deploying nirp removed the zero bound and uncovered the “ true ” nominal interest rates unconstrained by the zero bound. in this case, introduction of nirp has a larger effect if the gap between latent and actual interest rates were large, which effectively means that nirp ’ s initial effects depend on the extent to which the zero bound was a binding constraint on nominal interest rates with various maturities. concluding remarks