projected to moderate steadily, as production stops declining due mainly to the recovery in exports. still, while the economy continues to be in a fragile state, continuous attention should be paid to the risk of a negative impact on the economy from developments in foreign and domestic financial markets. with regard to prices, import prices are increasing reflecting the depreciation of the yen since around the end of last year and the rise in international commodity prices. the decline in domestic wholesale prices is recently contracting somewhat against the background of the increase in import prices and the progress in inventory adjustment. consumer prices continue to decline with the effects of the fall in crude oil prices in the latter half of last year persisting, while the prices of imported products and their substitutes keep on falling. corporate service prices continue to decline. as for the conditions surrounding price developments, the depreciation of the yen from around the end of last year and the rise in international commodity prices are regarded as factors to support prices for the time being. however, since domestic demand is projected to remain weak for a time, the balance between supply and demand is expected to keep exerting downward pressure on prices. furthermore, factors such as the ongoing technological innovations in machinery, deregulation, and the streamlining this report is based on data and information available at the time of the bank of japan monetary policy meeting held on march 19 and 20, 2002. the bank ’ s view of recent economic and financial developments, determined by the policy board at the monetary policy meeting held on march 19 and 20 as the basis for monetary policy decisions. of distribution channels will restrain prices. in addition, the expansion in the rate of decline in wages may also work as a factor to push prices downward, mainly in services prices which are apt to be influenced by this factor. overall, prices are expected to follow a gradual declining trend for the time being. moreover, given the high degree of uncertainty regarding future economic developments, the possibility that weak demand will further intensify downward pressure on prices continuously warrants careful monitoring. in the financial market, the overnight call rate continues to move around zero percent as the bank of japan provided ample liquidity to the money market by aiming at maintaining the outstanding balance of the current accounts at the bank at around 10 to 15 trillion yen. interest rates on term instruments rose somewhat temporarily generated by the activation of fundraising beyond the fiscal year - end since mid - february, but continue to be at low levels since this rise was constrained due to additional measures decided

takehiro sato : quantitative and qualitative monetary easing – importance of fiscal consolidation speech by mr takehiro sato, member of the policy board of the bank of japan, at the japan society, new york, 19 march 2014. * * * accompanying charts can be found at the end of the speech. introduction thank you, mr. harris, for your kind introduction. distinguished guests and members of japan society. it is my great honor and real pleasure to speak to you today. as a member of the policy board of the bank of japan, i myself voted for quantitative and qualitative monetary easing ( qqe ) last april. it is my strong desire to ensure that it succeeds. at the same time, in the process of overcoming deflation, the japanese government ’ s efforts for fiscal consolidation play a vital role. it is for that reason that i will talk about fiscal consolidation today. today, i will first explain the current developments in japan ’ s economy. i will focus on the meaning of the price stability target and stress the importance of flexibility in monetary policy. i will also talk about the effects of the price stability target on financial markets. next, i will explain the importance of fiscal consolidation from a range of perspectives, including potential changes in the balance of payments and a saving and investment balance in japan. in my speech, i will often refer to an optimistic scenario and a pessimistic scenario. the latter is intended to highlight the importance of the government ’ s efforts to ensure fiscal discipline. it is by no means intended to get bogged down in pessimism. i will then close my speech with some notes about the qqe and fiscal consolidation. i. developments in japan ’ s economy it has been almost a year since the bank introduced the qqe last april ( chart 1 ). economic activity and prices have been broadly in line with the baseline scenario presented in the outlook reports and interim assessments ( chart 2 ). in short, japan ’ s economy is steadily pursuing its path to achieving the price stability target of 2 percent. looking ahead, the effects of the consumption tax hike from 5 to 8 percent in april will be closely monitored. in my judgment, japan ’ s economy is entirely different from that in 1997, when the consumption tax was lifted from 3 to 5 percent. japan ’ s economy has become much more resilient against tax hikes. on the price front, the bank ’ s policy board has made the following judgment. excluding the