on the domestic side, continued attention should be paid to the developments in financial markets such as the volatile movements in long - term interest rates. on the price front, import prices have recently stopped declining, reflecting the uptrend in international commodity prices, especially crude oil prices. under these circumstances, domestic corporate goods prices are more or less flat, which is also partly due to the rise in tobacco tax. meanwhile, corporate services prices continue a year - on - year decrease of slightly over 1 percent. consumer prices also continue to decline, but the year - on - year rate of decrease has diminished to 0. 2 percent due to special factors, such as the rise in medical treatment costs in april in line with the reform of the medical insurance system and the rise in tobacco tax in july. this report is based on data and information available at the time of the bank of japan monetary policy meeting held on september 11 and 12, 2003. the bank ’ s view of recent economic and financial developments, determined by the policy board at the monetary policy meeting held on september 11 and 12, 2003 as the basis for monetary policy decisions. looking at the conditions influencing price developments, the outlook for import prices is unclear at present because it largely depends on developments in the foreign exchange rate. turning to the domestic side, the basic conditions surrounding prices, such as the supply - demand balance in the macroeconomy, technological innovations, streamlining of distribution channels, and pricing strategies of firms, are unlikely to change significantly for the time being. under these circumstances, domestic corporate goods prices are likely to remain more or less flat for the time being. consumer prices are basically projected to continue falling at the current moderate pace on a year - on - year basis, although there are possibilities that the rate of decline may temporarily diminish further depending on future special factors. as for the financial environment, the outstanding balance of current accounts at the bank of japan is moving at the 29 - 30 trillion yen level, as the bank has been providing ample liquidity. under these circumstances, the overnight call rate continues to move at around zero percent. interest rates on term instruments remain steady. meanwhile, interest rates on euroyen futures are recently declining gradually after rising noticeably from late august. yields on long - term government bonds rose rapidly reflecting an improved outlook for japan ’ s economy, and are recently moving in the range of 1. 4 - 1. 6 percent. meanwhile, yield spreads between private bonds ( bank bonds and corporate bonds )

of firms ’ relocation of production overseas, which had taken place amid the excessive appreciation of the yen, were more significant than i had expected. because of these effects, bis central bankers ’ speeches it is only recently that exports have picked up. during the second year – in fiscal 2014 – private consumption was weaker than expected. this was attributed to the effects of the decline in demand following the consumption tax hike being somewhat prolonged, as well as to other factors, such as the effects of the bad weather last summer. from consumers ’ perspective, it was natural that they perceived the consumption tax hike as being part of price increases. given that the rate of wage increases did not catch up with that of price increases including the tax hike, private consumption weakened. such effects on private consumption have been anticipated since tax hikes place a burden on consumers, but they have been somewhat larger than our expectations. on top of this, i would note the decline in crude oil prices, which amounted to a 60 percent drop within about six months, as the most unexpected event. as a result, the cpi inflation rate has declined to about 0 percent from 1. 5 percent. this decline in the inflation rate created a risk for the mechanism of qqe – namely, the formation of inflation expectations in particular – and this was why the bank decided to expand qqe. despite these unexpected events, the mechanism of qqe has been operating as intended. during the past two years, qqe – in tandem with the government ’ s policy measures – has markedly changed people ’ s negative mindset, which had taken root under deflation. if the economy continues its turnaround and deflation is to be overcome, japan will provide a rare example of a regime shift through macroeconomic policy. despite some unexpected events, i feel encouraged by the fact that the big picture of economic development for these two years is in line with what we envisioned at the outset. the bank will continue to steadily pursue qqe to achieve the price stability target of 2 percent at the earliest possible time. thank you. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches