requests are being made because the central bank needs to effect monetary operations through the smooth provision of funds. also, the eligibility criteria for counterparties must be as transparent as possible since it is impossible to conduct transactions with all market participants. having said all this, let me note that the bank and its counterparties in market operations are important to each other as trading parties in financial markets. in my opinion, the term “ trading party ” has two significant implications. the first implication is that both the bank and its counterparties aim to achieve their respective goals through the transactions in funds and jgbs. the bank controls the amount of money in the market or the level of interest rates, while the bank ’ s counterparties adjust their position in funds and jgb holdings and improve profitability. let me take the example of undersubscription. undersubscription in the bank ’ s funds - supplying operations occurs in the following cases : financial institutions have already secured enough funds to satisfy reserve requirements for the period ; they have managed to raise sufficient funds in the market to cover themselves over interim and fiscal year - end book closings ; and, they can sell any tbs or fbs or cp they hold to end - investors without difficulties. thus, undersubscription occurs when counterparties do not need the bank ’ s market operations. this implies that, in order to smoothly conduct market operations, the bank must understand and satisfy its counterparties ’ need for market operations. it also means that the bank must devise market operations that create such a need. this rather obvious point was not clearly recognized under the past framework where interest rates were the target. in that framework, the bank was rather passive. it provided funds when interest rates rose higher than the target, and absorbed funds when interest rates fell below the target. in contrast, under the present framework where funds are amply provided to achieve the target balance of current account deposits, the bank has been under pressure to increase funds held in current account deposits in line with the target. this has increased more than ever our awareness of the significance of transactions in financial markets. for example, if for some reason we observe a tightening of the conditions in a certain market in the money markets, the financial markets department of the bank will consider providing funds to that market. given its responsibility to ensure market stability, the provision of funds in such a circumstance would clearly be an appropriate decision. looking at this differently, a tightening of market conditions suggests that there

power to support economic activity of firms and households, the potential economic stimulus effects of low interest rates tend to increase as the economic environment improves. in october this year, the bank expressed again its aim to maintain the extremely accommodative financial environment and provide steady support for japan ’ s economy, and i will emphasize again today that the bank firmly maintains such a stance. the bank will thoroughly check the future developments in the economy and prices and take appropriate policy responses to bring japan ’ s economy back to a sustainable growth path with price stability. in terms of the effects of monetary easing, it is important to ensure the stability of financial markets. to ensure the stability of the financial markets is a responsibility as a central bank, and i will reemphasize that the bank is always prepared to act promptly and decisively if judged necessary to ensure the stability of financial markets. iv. responses to deflation in relation to the policy management, i will now describe the basic thinking on coping with the issue of deflation. as previously mentioned, the bank has been doing its utmost as a central bank to meet the challenge of getting out of the state of continued decline of prices, namely, deflation, and put japan ’ s economy back to a sustainable growth path with price stability, and made it clear to continue with such stance. to begin with, at the root of a continued decline in prices, there is a fundamental factor that demand is weak compared with the supply capacity of the economy as a whole. the starting point of the current price decline was the rapid contraction of financial and economic activities since the autumn of last year, and, as a result, the supply and demand balance deteriorated significantly. in order to deal with such situation, it is necessary to prepare an environment conducive to a sustainable expansion of final demand, such as business fixed investment and private consumption. in other words, on a policy front, it becomes critical to make households feel secure about their future and firms able to have expectations about the future growth. at the same time, as long as there will be no recurrence of the excessive booms in the united states and europe, it will be essential also for firms to convert their supply system into a new one that is in line with consumers ’ needs in a new era. as such, steady efforts on the part of the policy authorities as well as the private economic entities are necessary for coping with the issue of deflation, and such a process necessarily takes some