##juvenating businesses, and utilizing information technology. these undertakings by the bank of japan are somewhat different from those found in the conventional macroprudential toolkit, but i believe that they perform important functions in promoting financial stability. unconventional policy and beyond before concluding my remarks today, i would like to emphasize that, if changes in the potential growth rate would influence the effectiveness of monetary and macroprudential policies, and ultimately affect price and financial stability, that would naturally affect central banks ’ thinking on policy formulation. as a matter of fact, in the area of monetary policy, the effectiveness of policy had been constrained in japan by the concurrent decline in expected inflation under persistent deflation and in the potential growth rate. in this regard, the current pursuit by the bank of japan of the 2 percent inflation target through qqe with a negative interest rate will contribute to lifting potential growth through purging the deflationary mindset and encouraging capital formation. at the same time, in the area of macroprudential policy, the current focus on strengthening regulation does not solve the structural problem of low profitability at financial institutions. with regard to this problem, in the global policy fora, the jury is still out, so to speak, as regards how to expand the policy frontier. central banks perhaps need to be a little more flexible in the designing of macroprudential policies to serve this end. of course, structural problems cannot solely be solved by central bank actions. economic policies of the government and undertakings by firms and financial institutions aimed at encouraging innovation are also essential. the bank of japan is working with these actors in order to tackle the new challenges in terms of financial stability. thank you for your attention. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches

developments in wages, it is necessary to examine whether wage increases will be sustained and whether they will take hold, including the extent to which they spread to small and medium - sized firms. moreover, although the underlying rate of inflation is expected to gradually increase toward the price stability target, it is likely to take some more time. furthermore, this outlook is based on the assumption that the output gap will improve and that medium - to long - term inflation expectations and wage growth will rise. in order to achieve the price stability target of 2 percent, it is necessary for inflation expectations to rise and the phillips curve to shift upward ( chart 13 ). the bank aims to achieve this situation amid a virtuous cycle where both wages and prices increase. although it projects in its outlook report that japan's price developments will gradually approach this situation, the uncertainties surrounding the outlook for prices are high, as mentioned earlier, as risks to economic activity are considered to be skewed to the downside for the time being, especially with regard to overseas economies. the bank therefore judges that, at this point in time, achieving the price stability target of 2 percent in a sustainable and stable manner has not yet come in sight. ( 4 ) how are side effects evaluated? needless to say, it is necessary to pay close attention not only to the positive effects but also to the side effects of conducting monetary easing over a long period. the fourth question therefore is : what are the bank's thoughts on this point? one of the side effects often pointed out is that conducting monetary easing over a long period undermines the functioning of financial intermediation. in this context, the bank's assessment is that japan's financial institutions are well capitalized and have ample liquidity, and that financial intermediation has continued to function smoothly. in fact, lending by financial institutions has recently seen a year - on - year rate increase of more than 3 percent. moreover, financial institutions'lending attitudes as perceived by firms have remained accommodative. in regard to the impact on the functioning of the bond market, various data and surveys suggest that market functioning has deteriorated to a certain extent. however, in addition to taking measures such as expanding the range of 10 - year japanese government bond ( jgb ) yield fluctuations last december, the bank has deliberated on the specifics of daily market operations, such as temporary lending of jgbs. on top of this, overseas interest rates have declined,