direct effects of the consumption tax hike, the year - on - year rate of increase in the core cpi, which excludes volatile food, is likely to be around 1¼ percent for some time. thereafter, it is expected to reach the price stability target of 2 percent from the latter half of fiscal 2014 to fiscal 2015, as the economy continues to grow at a pace above its potential growth rate. based on such an outlook, the policy board has judged it appropriate to steadily pursue the qqe under its current guidelines of asset purchases. ii. price stability target and qqe a. price stability target as a flexible framework next, i will explain what we mean by the price stability target, introduced in january 2013 ( chart 3 ). bis central bankers ’ speeches under the qqe, the bank aims to achieve this target at the earliest possible time, with a time horizon of about two years. the policy framework of the price stability target is flexible, just like that adopted by major central banks overseas. specifically, monetary policy requires long and variable time lags before its effects permeate the economy, and thereafter prices. to achieve a sustainable growth path in the context of price stability, monetary policy needs to be flexible. in other words, we examine the current conditions and the outlook for economic activity and prices. we also analyze various risk factors including the accumulation of financial imbalances. we take account of all these developments when we decide on monetary policy. that is what i mean by being flexible. flexibility in monetary policy has been widely shared with other countries. particularly in the aftermath of the global financial crisis, major overseas economies have become increasingly attentive to the flexibility of monetary policymaking. from that viewpoint, the price stability target is by no means a rigid and superficial framework which calls for the inflation rate to reach 2 percent with surgical precision. it is a flexible and practical framework that accommodates the needs arising from economic developments. put differently, what the price stability target aims to achieve is not a situation in which only prices will rise. rather, it aims to achieve an environment in which the improvement of the overall economy results in higher wages and then higher prices. in my view, in such an environment, some degree of latitude to the price stability target – both on the upside and downside – is naturally required. furthermore, it is necessary to make an analysis from broader perspectives when assessing the extent to which the bank has come close to achieving the target. that includes examining the

recent developments in wages as well as the core cpi, an indicator that the policy board presents in its assessments. b. qqe and long - term interest rate i will now talk about the effects of the price stability target on financial markets. under the qqe, the bank puts strong downward pressure on nominal long - term interest rates through the massive purchases of jgbs. it also tries to raise people ’ s inflation expectations via the accumulation of the monetary base. the combination of the two will lower real long - term interest rates. that is an unprecedented challenge. there are different views on the extent to which the massive supply of the monetary base can have a real impact on people ’ s inflation expectations. nevertheless, lifting inflation expectations is one of just a few remaining policy options under these circumstances. after nearly 15 years of deflation, the medium - to long - term inflation expectations have been around 1 percent and stayed low, compared to those in other advanced economies. moreover, japan has been faced with a zero boundary of nominal interest rates. here, let me recap on how the qqe will work on nominal long - term interest rates through its transmission mechanism. nominal long - term interest rates combine two elements : one is the average of future short - term rates ; the other is premiums ( chart 4 ). based on that understanding, the bank has specified its forward guidance in order to produce these effects. first it will continue with the qqe, aiming to achieve the price stability target, as long as it is necessary for maintaining that target in a stable manner. that in effect will exert downward pressure on the average of future short - term rates. in addition, premiums will be prevented from widening through the massive purchases of jgbs with relatively longer maturities. the qqe thus relies on the mechanism in which the combination of the forward guidance and asset purchases will maintain nominal long - term interest rates at low levels. that is not different from what happens at other central banks, such as the federal reserve and the bank of england, which also depend on similar unconventional monetary policy. under such unconventional policy, nominal interest rates are likely to rise as the effects of the policy start to occur, preceding the improvement in the economy and prices. referring to the elements that i have just explained, future short - term rates are likely to rise if the market judges that an exit from current easing policy is at hand. admittedly, we need to follow a narrow path