with a marginal decline in rates on deposits has been achieved at the expense of financial institutions ’ profits. this point is closely related to the first one, in that the policy effects on lending rates will also depend on financial institutions ’ lending attitudes. impact on financial intermediation let me put this in more general terms. in assessing the effectiveness of the negative interest rate policy, the potential impact on the financial intermediation due to its influence on the bis central bankers ’ speeches profits of financial institutions needs to be taken into account. considering that the profits affect the soundness of financial institutions in a cumulative manner, the impact can vary depending on the duration of the policy. generally speaking, financial institutions raise short - term funds and invest them in long - term assets as their basic business model. given that the rates on deposits – which are the main funding tools – rarely become negative, the decline in yields throughout the entire yield curve or the narrowing of the spread between short - and long - term yields will lead to smaller spreads between deposit and lending rates, thereby negatively affecting the profits of financial institutions. for japan in particular, the impact of the negative interest rate policy on the profits of financial institutions tends to be relatively large, due to such factors as the amount outstanding of deposits far exceeding that of lending, and to the spreads between deposits and lending rates already being extremely small following prolonged competition among financial institutions. as long - term and super - long - term rates have declined significantly since the introduction of the negative interest rate policy, the rates of return on investments of insurance and pension products are expected to decline. under these circumstances, the sales of some saving - type products are suspended. some business firms have revised down their profit forecasts due in part to the increase in the net present value of retirement benefit obligations. although direct impacts of these developments on the entire economy may not be substantial, we should take account of the possibility that such developments can affect people ’ s confidence by causing concerns over the sustainability of the financial function in a broad sense, thereby negatively affecting economic activity. in sum, in proceeding with “ qqe with a negative interest rate, ” the bank should make an appropriate policy judgment by taking account not only of its powerful impact on the yield curve but also its impact on the financial intermediation in a broad sense. needless to say, there is still ample space for further cuts in the negative interest rate and for an increase in size in the “ quantity ” dimension. the bank has a

##tive financial conditions across the major economies have been achieved. i expect firms and households to make the most of such accommodative financial conditions for proactive economic activity, and for that purpose, i would like to reiterate the importance of raising the “ natural rate of interest ” i explained earlier ; namely, raising the potential growth rate by undertaking initiatives for structural reform. it is often argued that there is a “ limit ” to monetary easing, but i do not share such a view. needless to say, there is a limit in the sense that there are things that “ cannot be done legally ” or “ should not be done, ” such as directly underwriting government bonds and monetizing fiscal deficits. as i said earlier, however, even within the current framework, there is ample room for further monetary easing in either of three dimensions – quantity, quality, and the interest rate – and other new ideas should not be off the table. what we should bear in mind when conducting monetary policy is not its “ limit ” but a comparison between its “ benefits ” and “ costs, ” as is the case with any public policy. there is no free lunch for any policy. given that we have been implementing such large - scale monetary easing, any additional monetary easing entails “ costs, ” which negatively affects some sectors. that said, we should not hesitate to go ahead with it as long as it is necessary for japan ’ s economy as a whole ; namely, if its “ benefits ” outweigh its “ costs. ” furthermore, what is important is that a balance between “ benefits ” and “ costs ” can change depending on the situation. monetary policy should be conducted in a flexible manner. there may be a situation where drastic measures are warranted even though they could entail “ costs, ” depending on the situations for economic activity, prices, and financial conditions. the central bank should always prepare policy options to address such situations. i would add that the “ benefits ” of achieving the price stability target of 2 percent at the earliest possible time are enormous as japan ’ s economy is finally overcoming deflation that lasted for a prolonged period of time. the bank will continue to make its utmost efforts to achieve this commitment. thank you. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches