in oil prices. there have been a number of positive signs in this regard : first, various surveys indicate that inflation expectations have been edging up steadily over the last two years or so. second, annual spring wage negotiations appear to have started reflecting higher inflation expectations : base pay levels rose last year for the first time since the 1990s, and further accelerated this year. third, the bank ’ s economists recently confirmed, based on a rigorous quantitative analysis, that a “ regime - shift ” in trend inflation from zero to a meaningful positive level indeed occurred under qqe. 4 all these signs indicate that we are now overcoming the deflation that has long been afflicting our economy. we must maintain our current efforts in order to achieve the 2 percent inflation target at the earliest possible time, which we now expect to be around the first half of fiscal 2016. another interesting fact illustrated by the graph is that the recent unemployment rate in japan, about 3. 5 percent, is low even by japanese standards. with everything else being equal, the lower the unemployment rate, the better the economic welfare. however, that may not be the whole story. the fact that we have achieved this very low level of unemployment with only modest economic growth in the last two years indicates how heavily our adverse demography is weighing on the supply side of the economy. japan ’ s working - age population started to decline in the middle of the 1990s, and this decline is now gaining pace. this represents a considerable threat to potential growth, which has declined to an anemic 0. 5 percent, or possibly even lower. in order to restore a stronger supply side, we need to raise labor participation rates among the female and elderly population as well as labor productivity. as a matter of fact, the third arrow of abenomics is already working on these issues. although a central bank cannot directly change the potential growth rate, the bank of japan ’ s unprecedentedly accommodative monetary stimulus is certainly helping the reforms by dispelling the deflationary mindset. in professor tobin ’ s day, the policy problem was primarily related to a trade - off between the social costs of unemployment and those of inflation. the picture is different now. most major economies are in need of both higher inflation and more jobs. in this sense, there is no tradeoff. the new challenge has more to do with expanding our policy frontier than with choosing between trade - offs. this challenge is further complicated by the structural weakness of

economies. that calls for a better understanding of each other ’ s state of economic development and economic policies. that ’ s what the g - 20 wants to do through the framework for strong and sustainable growth initiative. wsj : the g - 20 is looking at various factors to assess the nature of global imbalances, and the debate often focuses on the part that foreign exchange rates should play in this assessment. what role do you think currencies, including the yuan, should play in the global rebalancing? noyer : it is up to [ china ] to assess exactly what part the exchange rate can play in the rebalancing. but appreciation of the yuan can help [ china ] enhance domestic consumption and dampen some of the effects of the rise in commodity prices. bis central bankers ’ speeches wsj : in order to address currency misalignments, shouldn ’ t the g - 20 call more strongly for increased currency flexibility across the board? noyer : the g - 7 has been monitoring excessive currency fluctuations. but the world having changed and g - 7 economies no longer being the dominant ones, should we adopt the same rules as we did during the ‘ 70s? we need to find out how to manage the system. how can we monitor capital flows, and how can we avoid the risk of capital controls hampering global trade? we need to give a clear mandate to the imf to monitor the capital account. it would be useful to have a clear set of rules. the imf can be an independent assessor of policies and give advice on the best course of action. wsj : what lessons have you learned from the crisis? noyer : there was probably during the period of time that preceded the crisis an excessive belief that the combination of the growing importance of emerging economies, which brought a disinflationary force in the manufacturing sector, and the credibility attained by central banks globally had created a world where inflation could be kept at bay quite easily. there was insufficient focus on some of the effects of low interest rates for a long period, like the fact that it facilitated asset bubbles and asset bubbles may lead to burst bubbles and economic and financial crisis or the transmission into pressure on inflation. we ’ ll probably be more attentive in the future. wsj : the ecb has upped its vigilance on inflation in the euro zone, but if interest rates were to b e raised earlier than expected, it could