the bank ’ s continued massive purchases of long - term jgbs as well as by lowering short - term interest rates through applying a negative interest rate to part of the current account balances held by financial institutions at the bank. this results in further lowering real interest rates and enhances the transmission of policy effects i just mentioned. bis central bankers ’ speeches the policy has already exerted the intended effects on interest rates. following the introduction of the negative interest rate policy, a large part of the jgb yield curve has declined substantially, with rates up to a maturity of over 10 years having turned negative. lending rates, including interest rates on housing loans, clearly have declined. issuance rates on cp and corporate bonds also have declined to a considerable degree. in the march tankan, financial institutions ’ lending attitudes as perceived by firms improved further following the introduction of the negative interest rate policy, and those for all industries and enterprises were at a level last seen in the late 1980s. firms ’ perception of borrowing costs is that these have declined notably ( chart 5 ). going forward, these policy effects on interest rates are likely to steadily spread to both the real economy and the price front. however, it will take some time for the monetary policy effects to spread. in addition, global financial markets – partly due to uncertainties regarding the outlook for emerging and commodity - exporting economies – remain volatile, and this has become a headwind that has restrained the effects of accommodative financial conditions on economic activity and prices from being exerted. as i noted earlier, the projection of the cpi in the april outlook report is lower than that in the previous report, mainly reflecting the downward revision of projections for real gdp growth and wage increases. nevertheless, the bank did not take additional monetary easing measures at the april mpm because, due to the reasons i just mentioned, the bank judged it appropriate to examine the extent of the penetration of policy effects. to avoid any misunderstanding, i would like to clarify that there has been no change in the bank ’ s commitment to achieving the price stability target of 2 percent at the earliest possible time. transforming people ’ s deflationary mindset and raising inflation expectations through this commitment is itself the aim of overcoming deflation, and at the same time the starting point of the effects of qqe and “ qqe with a negative interest rate. ” firms ’ and households ’ inflation perceptions have changed markedly under this commitment. while the bank at the april mp

bank of japan ’ s october report of recent economic and financial developments1 bank of japan, 15 october 2002 * the bank ’ s view * * japan ’ s economy has stabilized as a whole, but clear signs of recovery have not yet been observed partly due to large uncertainty regarding the global economy. with regard to final demand, while the decline in business fixed investment is coming to a halt, private consumption continues to be weak. moreover, housing investment remains sluggish and public investment is declining. meanwhile, exports continue to increase, albeit at a slower pace. industrial production, despite some deceleration, continues to rise in response to these developments in final demand and adequate reduction of excess inventory stocks. against this background, corporate profits are recovering and business sentiment continues to improve as a whole. however, the pace of improvement in business sentiment has become gradual and the improvement for the immediate future is also expected to be small partly due to large uncertainty regarding the global economy. as for the employment situation, the overtime hours worked continue to increase and new job offers remain firm. nevertheless, as firms are still maintaining their stance on reducing personnel expenses, household income continues to decrease noticeably with a plunge in summer bonuses. thus, the employment and income situation of households overall remains severe. turning to the economic outlook, the uptrend in exports is expected to continue against the background of the moderate recovery in overseas economies, but the deceleration in the pace of increase is projected to continue toward the year - end with the impetus from overseas restocking coming to a halt. thus, while industrial production is also expected to follow a moderate uptrend, the pace is likely to continue decelerating for the time being. with respect to domestic demand, public investment is projected to follow a declining trend and private consumption is likely to remain weak for some time due to the severe employment and income situation. judging from leading indicators and the recovery in corporate profits, it will gradually become certain that the decline in business fixed investment has come to a stop. however, a distinct recovery in business fixed investment in the immediate future is unlikely due to, among other things, large uncertainty regarding overseas economies. once the outlook for the increase in exports and production becomes more certain, domestic private demand will react to it positively. overall, it can be envisaged that japan ’ s economy will gradually form foundations for recovery as overseas economies continue the moderate recovery. however, it will take a while for the economy to show clear signs of recovery