It is a great honor to be invited to this meeting hosted by the Yomiuri International EconomicSociety today.At the end of January, the Bank of Japan decided to introduce "Quantitative and QualitativeMonetary Easing (QQE) with a Negative Interest Rate," which added the new dimension of"a negative interest rate" to the existing policy of QQE. Specifically, the Bank applies anegative interest rate of minus 0.1 percent to current accounts that financial institutions holdat the Bank. This measure enables the Bank to now pursue additional monetary easing byproviding the new option of "a negative interest rate" in addition to the "quantitative" and"qualitative" measures used so far. Some market participants had voiced doubts that a furtherexpansion of QQE would be possible, arguing that QQE had reached its limit, but I think suchviews have been completely dispelled.

"QQE with a Negative Interest Rate" will have an impact on financial institutions, financialmarkets, and, more broadly, people's lives in general. Moreover, as the term itself, "negativeinterest rate," sounds somewhat shocking, the measure has been the focus of attention in thenewspapers and on TV day after day. Given the wide impact -- on financial markets, themanagement of financial institutions, and people's everyday lives -- it will have, the measurehas given rise to a variety of questions and concerns. Today, I would like to explain theBank's thinking with regard to this policy and respond to frequently asked questions.

I. Benefits for Households and Firms
Are There Benefits for Households and Firms?

To start with, I would like to explain the benefits of "QQE with a Negative Interest Rate" forhouseholds and firms. The media has been reporting that while interest rates on housingloans have declined, deposit interest rates have also declined, asking whether the net impactof the policy for households is negative or positive. The answer is very clear. Individuals andfirms as a whole will definitely benefit from this policy (Chart 1). Deposit interest rates aredeclining, but the extent of the decline is minimal, since rates already were close to 0 percent.For example, interest rates on deposits in ordinary accounts (the Japanese equivalent tochecking accounts for retail customers) at mega-banks decreased from two-hundredths of a 2percent to a thousandth of a percent.

(Read more...)