macroeconomic and financial stability challenges ; the implications for financial stability of prolonged periods of low interest rates ; the potential impact on inflation of exceptionally easy monetary policies ; the challenges for central banks resulting from the fundamental change in the size and composition of their balance sheets ; and of course, as evidenced by recent events, the difficulties related to exit from umps. while a withdrawal of monetary stimulus resulting from the prospect of a sustained economic recovery should have beneficial medium - and long - term effects, this may be accompanied by substantial volatility in financial and foreign exchange markets, as shown by events in mid2013 and in recent weeks. i will return to this later on. third, the sources of systemic risk have been changing from 2008 to date, also as a result of structural changes in international capital markets. • shadow banking has shown a substantial expansion in recent years. the key drivers of this trend are well known, namely, a combination of low interest rates, weak supply of credit and tighter bank regulation. shadow banking can play a useful role by contributing to lending, allowing better risk management, and increasing liquidity. however, as the global financial crisis has shown, it can also endanger the stability of the financial system. the challenge, therefore, is to benefit adequately from its advantages while minimizing the accompanying risks, particularly in view of its rapid growth, both in advanced and emerging market economies, and its interconnectedness with the rest of the financial system. unfortunately, despite efforts under way, major data gaps remain and a proper assessment of the implications of shadow banking for systemic risk is still missing. • more particularly, the share of the nonbanking sector in the intermediation of international credit has risen substantially after the crisis. the case of the asset management industry deserves especial attention, given the risks for financial stability it raises. while this industry renders a number of advantages, at the same see imf, global financial stability report, october 2014. bis central bankers ’ speeches time it is highly concentrated, both in terms of the number of managers involved and the holdings of individual securities by some of them. in addition, this kind of investors may be more prone to herd behavior, and interconnectedness with the rest of the financial system is high. given the potential for procyclical actions, the size of the asset management sector and the risk of liquidity problems, some analysts have noted that the usual indicators of vulnerability that were designed for previous crises ( mostly bank -

march 24, 2017 bank of japan " quantitative and qualitative monetary easing with yield curve control " : after half a year since its introduction speech at a reuters newsmaker event in tokyo haruhiko kuroda governor of the bank of japan introduction i would like to express my sincerest gratitude for the opportunity today to explain the bank's monetary policy. half a year has passed since the bank introduced " quantitative and qualitative monetary easing ( qqe ) with yield curve control " in september 2016. this new framework has been working smoothly. today, looking back at developments in the global economy and the global financial markets since 2015, i would like to explain the background to and thinking behind the adoption of the new policy framework, following the introduction of a negative interest rate. then, i would like to talk about the current situation of and outlook for japan's economy, as well as the bank's stance on monetary policy going forward. i. the background to the adoption of " qqe with yield curve control " and thinking behind it a. turbulence in global financial markets and the introduction of a negative interest rate turbulence in global financial markets let me look back at developments in the global financial markets since summer 2015. investors'risk sentiment started to worsen against the background of the slowdown in emerging economies, including china, and uncertainties regarding those economies. in particular, after the turn of 2016, the global financial markets rapidly became destabilized due to heightened concerns regarding emerging economies, which were triggered by the significant decline in the shanghai stock prices ( chart 1 ). the decline in commodity prices, including crude oil prices, exacerbated the situation. under such circumstances, pessimistic views about the outlook for the global economy prevailed, such as the " secular stagnation " hypothesis. major economies faced the common policy challenges of how to address low growth, as well as low inflation under low interest rates, and this topic was hotly debated at international fora such as the group of twenty ( g - 20 ) finance ministers and central bank governors meeting. naturally, such headwinds for the global economy had a significant negative impact on japan's economy as well. in financial markets, the yen appreciated and stock prices declined. on the inflation front, the year - on - year rate of change in the consumer price index ( cpi ) excluding fresh food turned negative in 2016 for the first time in three years, due to the effects of the decline