now represents 30 per cent of the stock of housing loans ( compared with 18 per cent a decade ago ). 4. the main reason that debt has risen is that households can afford to borrow more in a low interest rate environment like the past decade than in a high interest rate environment like the previous two decades. allied to this is the fact that in a low inflation environment, the real value of the debt is not eroded as fast as it was in a higher inflation one. so each household that takes out a loan can borrow more at the start of the loan, and will run down the real value of the loan more slowly than formerly was the case. analysis published by the reserve bank of australia ( rba ) last month shows that these two related explanations could account for an approximate doubling in the debt to income ratio when their effects had fully worked through the system. see ‘ recent developments in housing : prices, finance and investor attitudes ’, rba bulletin, july 2002, ‘ innovations in the provision of finance for investor housing ’, rba bulletin, december 2002, ‘ housing equity withdrawal ’, rba bulletin, february 2003, and ‘ household debt : what the data show ’, rba bulletin, march 2003. see rba bulletin, march 2003, op cit. in principle, this would not be completed until the last loan taken out before the fall in interest rates was paid off, i. e. 25 years. but in practice it would be a lot shorter because on average mortgages are paid out or refinanced well before maturity. 5. financial deregulation and the associated increase in competition among lenders has also played a role by making loans cheaper, easier to obtain, particularly to investors, and providing innovations such as home equity loans and redraw facilities. 6. over 70 per cent of households either own their homes outright or are renting and therefore have no housing debt. owner - occupied housing debt is concentrated in about 30 per cent of households, as it has been for decades, but that 30 per cent have considerably higher debt levels now. 7. for those households with mortgages, there is a pronounced pattern in the debt to income ratio and the debt - servicing ratio over the life cycle. both these ratios peak in the 35 - 40 year age group and decline thereafter, usually to zero. 8. other measures of household balance sheet health such as the debt - servicing ratio and the gearing ratio show considerably less of an upward trend than the

not to rise despite the improvement in economic conditions. nevertheless, the risk of the economy falling into a vicious circle of declining prices and deteriorating economic activity seems to have further decreased, since the strength of the corporate sector and the robustness of the financial system have been enhanced. based on this outlook and assessment of risks, we have decided to maintain the current basic thinking regarding the conduct of monetary policy, employed since the termination of the quantitative easing policy in march 2006. the bank adjusted the level of the policy interest rate in july 2006 and in february 2007. adjustments were made in view of the outlook for the economy and prices, with the bank judging that sustained economic growth would continue with a virtuous circle of production, income, and spending in place, and that consumer prices would be likely to increase moderately in the long run in line with the " understanding of medium - to long - term price stability. " based on this assessment, we have been realizing the idea of " adjusting the level of interest rates gradually in the light of developments in economic activity and prices. " with inflationary pressures weak, the pace of adjustment has been slow and the accommodative financial conditions ensuing from very low interest rates have been maintained. the bank's basic thinking in this regard will remain the same in the conduct of future monetary policy. in sum, while confirming that japan's economy remains likely to follow a path of sustainable growth under price stability in light of the aforementioned " understanding " and assessing relevant risk factors, the bank will adjust the level of interest rates gradually in accordance with improvements in the economic and price situations. concluding remarks lastly, i would like to touch upon the bank's communication of information concerning the conduct of monetary policy. the bank will continue to explain carefully to the public its assessment of economic activity and prices and its basic thinking on the conduct of monetary policy in line with the " new framework for the conduct of monetary policy, " through, for example, the outlook report. in relation to this point, there are voices that call for the bank to communicate information on the specific time schedule of a policy change, but we neither believe it possible nor consider it appropriate to do so. the bank considers that there are two key pieces of information that it should provide, namely, its assessment of economic activity and prices, and its basic thinking on the conduct of monetary policy. taking into consideration such information provided by the bank, market participants carry out transactions based on their views regarding economic activity and prices