of the asset purchase program by adjusting the program in a flexible manner. h. is a substantial increase in risky asset purchases a viable option? on the other hand, it has been argued that the bank should substantially increase its purchase of risky assets. in line with its comprehensive monetary easing in october 2010, the bank has been purchasing risky assets such as corporate bonds and cp and – with government approval – exchange - traded funds ( etfs ) and japan real estate investment trusts ( j - reits ). among major central banks, the bank is the only central bank that purchases such risky assets for its own account. however, the bank ’ s intention in this operation is not to employ large - scale intervention in the asset markets but to work as a catalyst for the financial markets. some argue that it is a viable option for the bank to increase such purchases substantially by intervening in the markets on a large scale. i consider the efficacy of this sort of policy initiative to be doubtful, as it contains the risk of eroding the bank ’ s capital base. if the prices of risky assets held by the bank declined and the bank incurred a loss, this would result in a reduction in its payments to the national treasury. if the size of the risky assets was sufficiently large compared with the size of the bank ’ s net capital, the bank might fall into capital deficiency. the first outcome, reduction of payments to the national treasury, would be equivalent to an increase in fiscal spending, and because of this risk the bank must obtain authorization from the government based on article 43 of the bank of japan act in order to purchase etfs and j - reits. the second outcome, capital deficiency, could lead to a larger issue, affecting the credibility of the bank and the bis central bankers ’ speeches yen as well as the autonomy of monetary policy, if the bank asked the government for recapitalization or compensation for its loss. given these issues, whether the bank should substantially increase risky asset purchase from the current limit is a matter that involves not only the bank but also the government. it might therefore be effective to set ex ante policy rules for loss sharing, in order to prevent purchases of risky assets from influencing the autonomy of the bank ’ s monetary policy. i. are foreign bond purchases a viable option? at a press conference in july 2012 after becoming a policy board member, i remarked that foreign bond purchases might be an option for the bank but a number of conditions must be met. for example,

policy interest rates % s. a., 2008 / q2 = 100 japan united states euro area united kingdom japan - 1 cy 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 united states euro area united kingdom cy 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 note : for japan, for the period when no target interest rate was adopted, figures for the policy rate are the interest rate applied on excess reserves. sources : bank of japan ; federal reserve ; european central bank ; bank of england ; cabinet office ; haver. chart 4 central bank assets % of nominal gdp japan united states euro area cy 95 note : figures for japan and the euro area for 2017 / q3 are calculated using their nominal gdp figures for 2017 / q2. sources : bank of japan ; federal reserve ; european central bank, etc. chart 5 natural rate of interest and real interest rate % natural rate of interest real interest rate - 1 - 2 cy 95 note : based on boj staff estimations using 10 - year jgb yields, etc. for details of the estimation procedures of the natural rate of interest, see kei imakubo et al., " the natural yield curve : its concept and measurement, " bank of japan working paper series, no. 15 - e - 5 ( 2015 ). the shaded area indicates the 95 percent confidence interval for the natural rate of interest. sources : consensus economics inc., " consensus forecasts " ; bloomberg ; bank of japan, etc. chart 6 japan's economy corporate profits output gap and prices y / y % chg. % - 2 - 1 unemployment rate s. a., % 6. 0 s. a., % unemployment rate - 4 5. 0 4. 5 4. 0 3. 5 3. 0 2. 5 - 2 - 6 - 8 5. 5 ratio of current profits to sales ( all industries and enterprises ) - 3 output gap ( left scale ) - 4 cpi ( all items less fresh food and energy, right scale ) - 10 cy 05 06 07 08 09 10 11 12 13 14 15 16 17 - 5 cy 05 06 07 08 09 10 11 12 13 14 15 16 17 2. 0 cy 05 06 07 08 09 10 11 12 13 14 15 16 17 notes : 1. the output gap is based on boj staff estimations. 2. the cpi figures are adjusted for changes in the consumption tax rate. 3. figures for corporate profits