cyclical deceleration. in the bank ’ s april 2015 outlook for economic activity and prices ( hereafter the outlook report ), the policy board members ’ forecasts of the real gdp growth rate were around 2 percent for fiscal 2015, around 1. 5 percent for fiscal 2016, and in the range of 0. 0 – 0. 5 percent for fiscal 2017 ( chart 5 ). ii. conduct of monetary policy and price developments in japan next, i would like to touch on the conduct of monetary policy and price developments in japan. a. change in policy regime the bank is pursuing policy measures that aim at converting people ’ s deflationary mindset, which has been formed firmly amid the prolonged period of deflation, to one that expects moderate inflation. that is, preparing a platform on which people can act on the assumption that prices continue to rise moderately. to begin with, in january 2013, the bank set the price stability target of 2 percent in terms of the year - on - year rate of change in the cpi ; in other words, the introduction of “ inflation targeting. ” with a view to achieving this price stability target, the bank has been implementing an aggressive monetary easing measure called quantitative and qualitative monetary easing ( qqe ) since april 2013, and expanded the measure in october 2014 ( chart 6 ). by implementing such bold policy measures, the bank has intended to clearly indicate to the public that the basic thinking behind its monetary policy – that is, the policy regime – has changed, and also to encourage them to change their behavior in view of such change. in other words, this is the bank ’ s declaration that “ the rules of the game have been changed. ” b. commitment to achieving the price stability target at the earliest possible time before the introduction of qqe, the bank had pursued various monetary easing measures that were considered unconventional, such as the introduction of the zero interest rate policy and quantitative easing, and this made the bank a forerunner in monetary policy history. although each of the measures on their own could have been a quite powerful policy tool, it turned out that they were not effective enough to overcome deflation. while a variety of analyses attempted to explain why the bank was not successful in overcoming deflation, a major reason, in my view, was that the bank ’ s faith that “ deflation can be overcome through monetary policy ” was not strong enough, and that its commitment to achieving this aim was insufficient ; in other words

over the policy effects in the united states can be explained in terms of the traditional transmission channels. on the other hand, some arguments remain to be specifically pointed out about transmission mechanisms in unconventional policy, even though the qualitative mechanism in traditional and unconventional policies is the same. the first is about the effect of stabilizing financial systems and financial markets. this is the effect of soothing anxiety about financial systems by supplying ample liquidity to financial institutions, or the effect of stabilizing financial markets by central bank interventions when the markets become excessively risk averse and the market mechanism deteriorates, resulting in a surge in risk premiums. by preventing financial anxiety and preventing the markets from plunging, adverse effects on economic activity can be prevented. bis central bankers ’ speeches the second is about the effect of international spillover. with expectations for a protracted zero interest rate, global investors will search for yield or become active in the carry trade and risk taking, and capital will flow into high - interest - rate and commodity - exporting countries. this will then expand economic activity and raise stock prices in overseas emerging economies. as a result, there will be an effect that spills over to domestic economic activity and prices through an increase in exports to the emerging economies and an improvement in profits of global firms. the third is about the effect through the expected rate of inflation. this is the effect that, in addition to the existing channel of influencing demand, by attaching an expectation that a central bank ’ s balance sheet will expand for a protracted period, the expected rate of inflation will rise and real interest rates will decline, thereby affecting economic activity and prices. while these transmission mechanisms of monetary policy effects can be considered, the side effects will be a source of concern if monetary easing becomes excessive. as for the first effect i mentioned, if a central bank excessively intervenes in the markets and suppresses risk premiums too much, this might ruin the intrinsic function of the markets of making prices according to risks. in addition, financial institutions ’ profits might be compressed. by encouraging excessive risk taking, the second effect could induce economic overheating or a credit bubble in the countries receiving the capital inflows and subsequently cause a serious economic downturn. as for the third effect, if excessive balance - sheet expansion continues, the expected rate of inflation might rise unexpectedly or the markets might realize that the balance - sheet expansion is an undisciplined monetary increase or the monetization of government