an inflation rate of 2 percent – the price stability target – as expected ( chart 7 ). when assessing price developments, it is important to bear in mind that monthly figures for the cpi tend to fluctuate and that trend inflationary pressure is determined by two factors : improvements in the output gap and rising inflation expectations. to assess trend inflation, it is necessary for the bank to carefully examine these two factors. as i mentioned, japan ’ s labor market has tightened, and firms ’ excess capacity has almost disappeared as capacity utilization has increased. as a result, the output gap has been improving moderately and recently reached around 0 percent ( chart 8 ). moreover, as i will explain later, medium - to long - term inflation expectations appear to be rising on the whole. the year - on - year rate of increase in the cpi is expected to accelerate moderately, along with increasing wages, against the backdrop of rising inflation expectations as well as improvements in the output gap, given that japan ’ s economy is expected to continue growing at a pace above its potential. specifically, the inflation rate is expected to be around 1¼ percent for some time, since upward pressure from energy - related goods, particularly petroleum products, will likely wane. subsequently, with the output gap remaining positive bis central bankers ’ speeches and medium - to long - term inflation expectations rising, the year - on - year rate of change in the cpi is expected to follow an uptrend again and reach about 2 percent around the middle of the current projection period from fiscal 2014 through 2016, that is, in or around fiscal 2015. looking at the median of the policy board members ’ forecasts in the interim assessment of the outlook report at the july mpm, projections for the year - on - year growth rate in the cpi ( excluding fresh food ) are plus 1. 3 percent for fiscal 2014, plus 1. 9 percent for fiscal 2015, and plus 2. 1 percent for fiscal 2016, after excluding the direct effects of the consumption tax hikes ( chart 5 ). ii. conduct of monetary policy a. what is qqe? for the remainder of my speech i would like to focus on several points concerning the bank ’ s conduct of monetary policy. the qqe policy the bank has been pursuing since april last year has two major pillars ( chart 9 ). the first pillar is a commitment to achieve the 2 percent price stability target as swiftly as possible. specifically, the bank clearly pledged that it would achieve the price

loaded increase prior to the consumption tax hike. with the employment and income situation improving, private consumption has been moderately picking up as a trend. business fixed investment has increased as corporate profits have improved steadily. meanwhile, public investment has been at a high level, and housing investment appears to have stopped weakening, despite the decline in demand following the consumption tax hike. reflecting these developments in demand, industrial production has been hovering at a high level and the employment and income situation has improved. therefore, a virtuous cycle of economic activity has been operating. given this assessment of the regional economy, i hope that the extension of the hokuriku shinkansen line to kanazawa in march 2015 will further boost economic activity in the region on both the tourism and the business front. with regard to tourism, an increasing number of visitors are expected to come to this region, and there has been an increase in the building and renovation of hotels and other commercial facilities to respond to this increase in demand. regarding business, firms have been launching initiatives such as developing new sales networks and tapping new customers as well as promoting the relocation of enterprises to the region from outside the region. moreover, i have heard that – taking advantage of the clustering of the textile industry in this region – industry, the prefectural administration, and academics in coordination have launched initiatives to develop new materials made from carbon fibers. i have also heard that initiatives aiming to promote new industries such as aircraft - related industries and medical and nursing services have been implemented. i sincerely hope that, with the extension of the hokuriku shinkansen line to kanazawa, the region will enjoy further growth in the future through the strengthening of joint efforts between the public and the private sector in a wide range of areas to boost the economy of the region. thank you. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches