, the bank ’ s drastic quantitative easing has not been quite strong enough by itself to boost the economy and prices. why is this so? it may have been because the adjustment pressure on the economy was, and is, still quite strong. however, one of the effects expected from the introduction of quantitative easing was the so - called “ portfolio rebalancing effect. ” the bank thought that, even when the marginal value of liquidity services became zero, people would start to rebalance their portfolios by investing in assets with higher marginal values whether these were real or financial assets, if the bank increased further its provision of liquidity. the aim of this process was thus to generate positive economic momentum, acting, for example, to push up asset prices. so far, however, the effect has not been widely observed. it might also be fair to touch upon the issue of the decline in the functioning of financial markets, especially the money market, since the introduction of the quantitative easing framework. with zero interest rates, money market participants have been less willing to invest their funds in the market, because returns from such transactions have not been sufficient to cover their trading costs. due to the bank ’ s ample provision of liquidity, there has been a sharp decrease in trading volume among market participants, with the exception of trading carried out with the bank. as a result, more market participants have become concerned about whether they will be able to raise funds in the market smoothly in the future even if they offer higher interest rates. ironically, the decline in the functioning of the money market has increased the precautionary demand of financial institutions for increased current account deposits at the bank. at the time of the introduction of the quantitative easing framework, there were doubts about whether the bank would be able to provide sufficient liquidity to achieve its target for the outstanding balance. in fact there were frequent cases of undersubscription, where bids fall short of the bank ’ s offers, in the bank ’ s fundssupplying operations. however, such undersubscription has not occurred recently, and the bank has been able to push through substantial increases in its target for the outstanding balance of current account deposits. the more the bank proceeds with monetary easing to secure financial market stability, the more demand for current account deposits increases due to the impaired functioning of the market. as a result, the bank will have to meet this increased liquidity demand in order to secure market stability. this is the dilemma

bank ’ s execution of a market operation that involves exchanging jgbs for current account deposits at the bank is becoming equivalent to exchanging ten 1, 000 yen notes for one 10, 000 yen note. in opposition to this view, there is an argument that, as long as long - term interest rates are not in fact zero percent, there is still a difference between current account deposits at the bank and jgbs. the corollary is that market operations involving the exchange of jgbs for current account deposits are indeed meaningful, and a massive large - scale purchase of jgbs by the bank would be effective. there is also an argument that it is inappropriate to allow long - term interest rates to decline any closer to zero percent. according to this view, the bank should enhance the effects of quantitative easing not merely by increasing quantity but also by introducing qualitative improvement of quantitative easing measures through the purchase of other types of assets. c. policy commitment based on the consumer price index ( cpi ) the third feature of the quantitative easing framework is the bank ’ s explicit commitment based on the year - on - year growth rate of the cpi : namely that the bank will maintain the current framework for money market operations until the cpi ( excluding fresh food, on a nationwide basis ) records a yearon - year increase of zero percent or more on a sustainable basis. the idea of the first feature, as i have already explained, is to achieve further increases in the bank ’ s provision of liquidity even after short - term interest rates have reached the zero bound. the idea of the third feature is to achieve an easing effect by the bank ’ s commitment to keep short - term rates at low levels well into the future. in this way, even if short - term rates come up against the lower bound, the bank can still “ borrow ” from the effect of the future low rates. thus, the fundamental aim of the third feature is to lower longer - term interest rates across the board by “ borrowing ” future monetary easing through the commitment. this policy commitment shows the bank ’ s determination to put a stop to price declines by binding future monetary policy to the actual inflation rate. however, this should not be misunderstood as inflation targeting. i am fully aware of views that the bank should adopt inflation targeting instead of the current commitment. however, it should be noted that, in a sense, this commitment has significant implications that go beyond those of standard inflation targeting. in a standard inflation targeting regime,