- called neutral interest rate - - that is, the nominal interest rate level that is neutral to economic activity - - by anchoring inflation expectations at about 2 percent and of securing the ability of monetary policy to respond. iii. qqe : monetary policy to work on expectations i took office as governor of the bank of japan in march 2013 and immediately introduced a monetary policy regime - - quantitative and qualitative monetary easing ( qqe ) - - that is quite different from past regimes. qqe consists of two pillars : directly working on people's expectations through a price stability target of 2 percent and a strong and clear commitment to doing whatever it takes to achieve this, and ( 2 ) directly encouraging a decline in long - term interest rates through large - scale purchases of long - term japanese government bonds ( jgbs ). if inflation expectations rise as a result of the former and nominal long - term interest rates fall as a result of the latter, this will push real interest rates to levels below the natural rate of interest even in the face of the zero lower bound. in additional steps, the bank of japan in january 2016 introduced a negative interest rate policy in order to address the strong headwinds caused by turbulence in global financial markets. the negative interest rate policy aims at exerting further downward pressure on interest rates across the entire yield curve by pushing down the short end of the yield curve, in combination with large - scale purchases of jgbs. thereafter, in september 2016, the bank conducted a comprehensive assessment on developments in economic activity and prices as well as policy effects since the introduction of qqe ; based on the findings, the bank introduced yield curve control, which focuses on long - term interest rates in addition to short - term interest rates as the operating target. however, the basic approach of lowering nominal interest rates across the entire yield curve and lowering real interest rates by raising inflation expectations has remained unchanged. in modern central banking, qqe is classified as unconventional monetary policy, but from a somewhat longer - term perspective, it can be said to be a contemporary application of hawtrey's theory on the importance of guiding expectations and keynes'theory that monetary easing can be conducted through the purchase of long - term government bonds. an old east asian proverb - - " visiting old, learn new " - - says that one can derive new understanding from learning the lessons of the past, and i think this is particularly apt with regard to the intellectual journey

wholesale prices are leveling off due to the progress in inventory adjustment as well as an increase in prices of some products closely related to international commodities, such as those of petroleum products. consumer prices continue to be unchanged. corporate service prices are still falling, although the pace of the decline is slowing. for a while, movements of overall prices are likely to be flat, as the decline in this report was written based on data and information available when the bank of japan monetary policy meeting was held on 9 september 1999. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on 9 september as the basis of monetary policy decisions. domestic commodity prices has come to a halt reflecting the rise in import prices to date. however, substantial narrowing in the output gap led by a recovery in private demand is unlikely for the time being, and wages continue to decline. thus, downward pressure on prices is expected to remain. in the financial market, the overnight call rate has stayed at nearly zero and financial institutions have been confident about the availability of overnight funds. as for interest rates on term instruments, short - term rates such as those of three months have weakened. however, longer - term rates maturing beyond the year - end continue to be relatively high partly due to market participants ’ concern over the year 2000 problem. the japan premium has continued to be nearly zero for short - term transactions. yields on long - term government bonds rose to 2 percent in late august, but have recently fallen to 1. 8 - 1. 9 percent. the yield spread between government bonds and private bonds ( bank debentures and corporate bonds ) has stopped narrowing. stock prices recovered the 18, 000 yen level in late august, but subsequently declined against the background of the appreciation of the yen and the weak tone in us stock prices. currently, the prices are around 17, 500 - 18, 000 yen. the yen has appreciated further against the us dollar since mid - august to the current level of around 110 yen. the amount outstanding of funds in the call money market has remained generally stable since the middle of june. to date, this has not led to any difficulty in funds settlement, but close attention should be paid to future market developments. with regard to corporate finance, private banks have basically retained their cautious lending attitude. however, constraint that had been caused by severe fund - raising conditions and insufficient capital base has eased considerably. under these circumstances, major banks have gradually become more