have been difficult for the committee to put forward a 7 percent unemployment goal when the current program started and unemployment was 8. 1 percent ; this would have involved a lot of uncertainty about the magnitude of asset purchases required to reach this goal. however, as we get closer to our goals, the balance sheet uncertainty becomes more manageable – at the same time that the market ’ s demand for specificity goes up. in addition to guidance about the ultimate completion of the program, market participants are also eager to know about the conditions that will govern interim adjustments to the pace of purchases. here too, it makes sense for decisions to be data - dependent. however, a key point is that as we approach an fomc meeting where an adjustment decision looms, it is appropriate to give relatively heavy weight to the accumulated stock of progress toward our labor market objective and to not be excessively sensitive to the sort of near - term momentum captured by, for example, the last payroll number that comes in just before the meeting. in part, this principle just reflects sound statistical inference – one doesn ’ t want to put too much weight on one or two noisy observations. but there is more to it than that. not only do fomc actions shape market expectations, but the converse is true as well : market expectations influence fomc actions. it is difficult for the committee to take an action at any meeting that is wholly unanticipated because we don ’ t want to create undue market volatility. however, when there is a two - way feedback between financial conditions and fomc actions, an initial perception that noisy recent data play a central role in the policy process can become somewhat self - fulfilling and can itself be the cause of extraneous volatility in asset prices. thus both in an effort to make reliable judgments about the state of the economy, as well as to reduce the possibility of an undesirable feedback loop, the best approach is for the committee to be clear that in making a decision in, say, september, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting – as salient as these releases may appear to be to market participants. i should emphasize that this would not mean abandoning the premise that the program as a whole should be both data - dependent and forward looking. even if a data release

hiroshi nakaso : japan ’ s economy and monetary policy speech by mr hiroshi nakaso, deputy governor of the bank of japan, at the joint luncheon of the american chamber of commerce in japan ( accj ), the european business council in japan ( ebc ), and the swiss chamber of commerce and industry in japan ( scci ), tokyo, 8 july 2014. * * * introduction it is my pleasure to have the opportunity to speak at the joint luncheon of the swiss chamber of commerce and industry in japan, the american chamber of commerce in japan, and the european business council in japan – one of the events to commemorate the 150th anniversary of diplomatic relations between switzerland and japan. since the 2008 global financial crisis, the economies of the united states and europe have been sluggish and have yet to see a full - fledged recovery. against this backdrop, the inflation rate in the euro area has been low and there are concerns that the euro area may face protracted disinflation. japan suffered from deflation from the latter half of the 1990s, that is, preceding the global financial crisis, but under quantitative and qualitative monetary easing, dubbed qqe and introduced in april last year, japan appears to have finally embarked on a path toward overcoming deflation. today, i would like to talk about japan ’ s experience under 15 years of deflation while referring to monetary policies in the united states and europe since the global financial crisis. i. japan ’ s deflationary equilibrium since the latter half of the 1990s, japan ’ s economy had been in a state of deflation, in which the year - on - year rate of change in the consumer price index ( cpi ) was either zero or slightly negative. a distinctive feature of japan ’ s deflation is that it was moderate but persistent ( chart 1 ). the annual average rate of decline in the cpi from fiscal 1998 to fiscal 2012 was a meager minus 0. 3 percent, but this decline went on for 15 years. it is difficult to clearly identify the causes of deflation. however, the situation in the latter half of the 1990s, when japan ’ s economy fell into deflation, suggests the following. first, following the burst of the asset bubble at the beginning of the 1990s, firms and financial institutions were forced to repair their impaired balance sheets. however, financial institutions ’ nonperforming assets continued to build up due mainly to protracted economic stagnation ( chart 2