prepared. this is why the maastricht treaty had its fiscal policy clauses and also why the stability and growth pact was concluded. also the famous prohibition of direct central bank credit to the government, and the institutional independence of the central banks, are in effect protections against fiscal dominance. now we know that the fiscal framework as put in place before the start of the emu was not strong enough to prevent fiscal problems from emerging. some have been worried that fiscal dominance has taken hold when the central banks have used government bond purchases, both to stabilize the markets and to produce additional monetary stimulus with “ quantitative easing ” when the interest rate instrument has already been used to the maximum. the extended asset purchase programme of the ecb announced in the week before last is an example. as to the euro area, there is no evidence of fiscal dominance. the acid test for fiscal dominance is : does monetary policy break its price stability objective for the sake of maintaining the solvency of the government sector. this is not the case. the price stability objective has not been and will not be abandoned. the bond purchases of the eurosystem are directed to make monetary policy more effective, not less. in particular, we want to move closer to our definition of price stability, and the bond purchases are contributing to that end. we have had well known fiscal problems in some of the euro area countries. still, the traditional symptom of fiscal dominance, accelerating inflation has not materialized, nor have inflation expectations risen. inflation expectations remained well in line with the price stability objective until last summer, when they started to show signs of declining, not increasing. bis central bankers ’ speeches does this mean that the risk of fiscal dominance has become obsolete? certainly not. the idea that monetary policy should be able to concentrate on its primary objective is relevant also now. but it manifests itself in a slightly different way than in a high inflation environment. solvency of governments is a self - evident condition for sustainable policies. but striving for our definition of price stability now requires very accommodative monetary policy, which includes exceptionally low interest rates, and also bond purchases. there have been worries that such a policy could make it too easy for governments to engage in excessive deficits and fiscal irresponsibility. is the ecb, for its part, making life too easy for governments which should continue their consolidation efforts? it may well be that the financing of government deficits is made easier by an accommoda

, it is necessary to continue to carefully monitor developments in corporate financing. iv. conduct of monetary policy i have so far explained financial and economic conditions here and abroad. confronted with the drastic changes in economic and financial conditions, countries around the world have taken policy actions aggressively since last autumn. central banks have also taken a variety of policy measures. reflecting the nature of the current economic crisis, where the world economy faced a simultaneous and sharp downturn, policy responses of central banks including the bank of japan have become quite similar. these can be broadly categorized in three main areas. first is the reduction in the policy interest rate. as you know, the bank of japan has reduced its policy interest rate down to 0. 1 percent, and central banks in other major countries have also substantially reduced their policy interest rates. as a result, interest rates charged for overnight funds in the interbank market now stand at 0. 1 percent in japan, 0. 2 percent in the united states, 0. 25 percent in canada, and around 0. 5 percent in the euro area and the united kingdom. however, while major overseas countries have also reduced the level of interest rates down to nearly zero, they are, at the same time, aware of the side effects that extremely low interest rates may have on the functioning of money markets and the business conditions of financial institutions. they, therefore, have not adopted the zero interest rate policy which the bank had adopted in the past where the policy interest rate was brought down literally to within a hairbreadth of 0 percent. second is ensuring financial market stability through the provision of abundant liquidity. central banks have been providing abundant liquidity in their currency, while adopting measures such as lengthening the terms of funds provided. furthermore, in the current financial crisis, central banks in major countries are providing dollar liquidity in coordination with the federal reserve, and this measure seems to be making substantial contributions in stabilizing financial markets. third is restoring the proper functioning of financial intermediation. in this regard, despite their common aims, they differ in terms of where the priority is attached reflecting the differences in the structure of financial intermediation in each country. at the end of 2007, the ratio of bank lending relative to nominal gdp, which can be used as a guide to capture the differences in the structure of financial intermediation, was 63 percent in the united states, 145 percent in the euro area, and 136 percent in japan. on the other hand, the ratio of