protracted inflationary pressures, in addition to pushing down the global economy. attention should also be paid to such factors as the aging population, intensified conflict between china and both the united states and europe, and the decline in medium - to long - term growth potential mainly due to the imposition of stronger restrictions. the second factor is firms'price - setting behavior. uncertainties surround future developments in the pass - through of raw material cost increases, leaving potential for movement in either direction. if cost increases are not passed on sufficiently, this could cause firms to fall into a vicious cycle where their business performance will deteriorate, making it inevitable that they will cut wages and investment for the future. on the other hand, the passthrough of cost increases may also proceed further than expected ; firms have recently become increasingly sensitive to inflation, with upstream price rises gradually spreading to downstream ( chart 4 ). i consider it crucial for firms'price - setting stance to become active in order for japan's economy to shift toward a new growth path and to achieve the bank's price stability target. the third factor is a change in households'preference for holding on to their cash and deposits. the amount outstanding of households'cash and deposits continued to grow, increasing by 44 trillion yen relative to the pre - pandemic trend, and reaching 1, 072 trillion yen as of endseptember 2021 ( chart 5 ). if the impact of covid - 19 gradually wanes, this is expected to result in a materialization of pent - up demand, thereby stimulating economic activity. in fact, with the younger generation in particular having been showing greater interest in financial asset investment, it is hoped - - as i will elaborate on later - - that if households can reap the fruits of global economic growth by gaining stable income through the dividends from their investment in financial assets, this will help bring about a virtuous cycle of growth and distribution in the long run. at the same time, these trends naturally weaken when households lower their growth expectations for japanese firms. i am therefore paying close attention to how these trends develop alongside firms'efforts toward achieving growth. the fourth factor is investment behavior, particularly among small and medium - sized enterprises ( smes ). the amount outstanding of cash and deposits has been on an increasing trend for both large enterprises and smes. in contrast, net interest - bearing debt - - the difference between interest - bearing debt and cash and deposits - -

however, i personally consider that fixed investment and wages have not increased to the extent initially expected. while this situation is largely due to the fact that the recent improvement in corporate profits has been supported by temporary factors, i believe that it also is attributable to firms'assessment that the domestic market has not yet improved sufficiently. for example, while the recent improvement in current profits of large manufacturing firms has been brought about largely by factors that cannot necessarily be considered sustainable, such as the depreciation of the yen and low crude oil prices, the contribution of the increase in domestic sales volume to such profits is limited. moreover, the potential growth rate has stayed at a low level, and its pace of improvement is likely to remain moderate. under these circumstances, firms would make active use of their profits in overseas markets – where expectations are high for increases in sales and profits – while in the domestic market, they would maintain their cautious stance toward spending. based on these developments, for firms to increase fixed investment relative to cash flow, i think that a rise in their growth expectations for the domestic market is indispensable. however, with strong headwinds such as the population decline with a low birth rate and aging, i personally consider that it would still take considerable time to raise the growth potential of japan's economy through various measures and thereby raise firms'medium - to long - term growth expectations for the domestic market. c. real income and private consumption in my view, private consumption has continued to lack momentum on the whole, although it has somehow maintained its resilience supported by the favorable environment, such as the improving employment and income situation and accommodative financial conditions. i think that some of the factors behind this sluggishness in consumption have been that, in addition to such temporary factors as bad weather, consumers have been more acutely sensing inflation while their expectations for wage increases have stayed low. indeed, since around spring 2015 in particular, prices of a wide range of food and daily necessities have been raised while the rate of increase in wages has remained moderate, and this may have negatively affected consumer sentiment to a considerable degree. bis central bankers ’ speeches let us look at this situation from the perspective of monetary easing effects. while real interest rates continued to decline due to the policy effects of qqe at the time of its introduction, there was no significant change in the outlook for real income. therefore, a monetary easing effect emerged – that is,