. even when there is a surplus of funds in the money market as a whole, money market rates could rise slightly due to a decrease in the supply of short - term funds by the bank. if money market rates were sufficiently positive and there were no concern about financial system stability, the bank would be free to use any assets for its operations, because a surplus or shortage of funds would ultimately be adjusted in the market. however, this is not currently the case in japan. the outright purchase of long - term jgbs is a means to smoothly increase the outstanding balance of current account deposits, and has played a significant role in securing financial market stability. at the same time, such a purchase has engendered some unexpected side effects, such as fewer opportunities for the bank to conduct money market operations, which has in some cases led to a slight rise in money market rates. let me briefly touch upon the relationship between long - term interest rates and the outright purchase of long - term jgbs. market participants often point out that the decline in long - term interest rates up until mid - june was partly due to the bank ’ s outright purchase of long - term jgbs. the outright purchase of long - term jgbs of 1. 2 trillion yen per month could facilitate the adjustment of dealers ’ position in the market. and it appears easy to understand that when long - term interest rates fall for some reason, the existence of such a purchase would make dealers more bullish than otherwise. but, based on the observation that the yield on ten - year jgbs has been fluctuating between 0. 4 percent and 1. 4 percent for the past month or so, the relationship between long - term interest rates and the outright purchase of long - term jgbs may not be as simple as it appears. v. relationship between the bank and its counterparties in market operations a. findings in the area of supply and demand for funds the number of counterparties in the bank ’ s market operations is close to 150 at present. when financial institutions become eligible as a counterparty in the bank ’ s market operations, they are requested to bid actively against the bank ’ s offers for market operations, process transactions accurately and swiftly, and provide the bank with market information and analyses useful in conducting monetary policy. in addition, the bank recently began considering the amount of successful bids in the previous year as a criterion for the selection of counterparties for market operations in the following year. these

cases, ensuring financial market stability becomes most important. then, the question is how to assess subtle changes in financial markets in light of maintaining their stability. in the money market, a tightening of the market will not necessarily be translated into a change in overnight interest rates, as these rates have been at around zero. for example, even when concern about financial system stability intensified in autumn 2002, the unsecured overnight call rate stayed at 0. 001 percent. however, the repo rate on forward transactions, the yield on tbs with longer maturity, and the offer rate of the bank ’ s funds - supplying operations all increased. thus, when conducting market operations under such circumstances, it becomes important to judge how and to what extent the target balance for current account deposits should be achieved and various interest rates should be stabilized to ensure financial market stability. moreover, the criteria for such judgment differ depending on the economic and financial conditions. therefore, it has become very challenging to judge whether financial market stability is being maintained. b. how to evaluate the functioning of financial markets the second challenge is to maintain the functioning of financial markets. the word “ call ” in the money market derives from the phrase “ money at call, ” referring to the money available on demand. the amount outstanding of the call market decreased substantially after financial institutions felt that it would not be a problem to hold reserves far in excess of required reserves. since the call market is the market in which participants lend and borrow short - term funds, the shrinking of the market implies a possibility that financial institutions may not be able to appropriately perform their banking activity. therefore, the bank inevitably has a serious concern about maintaining the functioning of the market. lenders in the money market are reluctant to lend when market rates fall to virtually zero. some regional banks have closed down their tokyo branches. it has also been pointed out that, with liquidity in the call market declining as a result of less market participation, the market may not function effectively in funds procurement in times of emergency. let me elaborate by illustrating these points with examples. the amount outstanding of the call market stood at 26. 5 trillion yen at the end of february 2001 just before the introduction of quantitative easing. this amount fell by roughly 10 trillion yen in two years to 16. 5 trillion yen at the end of february 2003. in addition to the introduction of quantitative easing, two factors among others are considered to have contributed to this reduction : one is the progress in consolidation among large financial institutions, and the