inevitable down phase. second, in the down phase we are still managing to grow. we are probably roughly halfway through the decline in resources sector capital spending now ; the headwinds from that source are about as intense now as they are likely to get. we are still growing. it would be good if the growth was a bit stronger, but nonetheless over the past year the non - mining side of the economy has generated respectable growth in employment. the ‘ rebalancing ’ is occurring. it isn ’ t as seamless as it would be in an ideal world, but we don ’ t live in such a world. monetary policy is contributing to that rebalancing, consistent with its mandate, with a very accommodative stance. it seems likely that an accommodative stance will be appropriate for some time yet. were a change to monetary policy to be required in the near term, it would almost certainly be an easing, not a tightening. the rate of cpi inflation is clearly no impediment to easing. the housing market may be calming, lessening risks from that source, though by how much and how persistently we cannot yet know. this is perhaps an opportune moment to offer some observations about the recent change in mortgage interest rates on the part of the major, and some smaller, banks and in particular the question of whether the reserve bank should respond to it with a decline in the cash rate. on some other occasions, the reserve bank has moved the cash rate by more than otherwise to take account of changes in the relationship between the cash rate and other interest rates. one such occasion was in may 2012, when the reserve bank board wished to ensure that the economy received a worthwhile stimulus from a policy easing after a period in which lending rates had tended to increase even while the cash rate had been steady. the board wanted to make sure that financial conditions would move to a clearly easier position than they had been when the cash rate had previously been lowered, five indeed, rees and kulish ( 2015 rdp ) suggest that households behaved as if much of the shock was temporary. bis central bankers ’ speeches months earlier. so on that occasion the board decided on a larger than normal reduction in the cash rate. the question that is relevant for the reserve bank board at present is, first and foremost, whether the recent changes in mortgage rates result in an effective set of financial conditions that is “ too tight ” for the economy. in addressing

been continued and included in this program. moreover, the asset purchase program is aimed at breaking another vicious circle in capital markets, that caused by “ excessive ” risk aversion. in this asset purchase program, the bank purchases riskier assets than it bought before : bbb - rated corporate bonds, and a - 2 cps. it also purchases etfs and j - reits directly from the market. the purchase is designed to act as a catalyst to induce investment in riskier assets, and thus help solving the coordination failure. to tackle the second, “ trend - enhancement ” challenge, or strengthening growth potential, the bank instituted its growth foundation strengthening facility ( gfsf ) in the form of preferential fund - provisioning to support financial institutions ’ own initiatives in lending and investing in new growth areas. it should be made clear here that it is not the bank of japan but participating financial institutions that determine which investment projects should be funded using this gfsf. thus, the gfsf is designed to be a catalyst to induce banks to find new firms or new investment projects in their perceived growth areas. in this way, the gfsf is targeted at breaking the vicious circle of no lending resulting in no new markets and thus no demand for lending to start with. when implementing these measures to cope with cyclical - stability and trend - enhancing challenges, it is very important to take appropriate account of the third challenge, that of avoiding causing problems in national debt management. specifically, it is crucial to avoid creating an impression of the “ monetization ” of government debts. otherwise, the large scale purchase of jgbs may lead to a substantial and lasting ratcheting up of long - term rates, bis central bankers ’ speeches which would pose a serious problem for economic recovery and the financial position of the government. taking this point into consideration, the bank of japan has already purchased about 22 trillion yen in jgbs annually, beside the asset purchase program. by the same token, we should be very careful about the possibility that asset purchases may lead to capital losses, which could tarnish the credibility of the central bank. in the bubble years, we often heard talk of this being the beginning of a new age of prosperity and that, as the title of the popular book says, “ this time is different ”. since the bubble burst, people have tended to think the collapse was simply a fleeting nightmare and that we will eventually be back to the old normal, just as before