determines wages. as i mentioned earlier, labor market conditions are likely to continue tightening and the inflation rate will increase steadily toward 2 percent as the bank pursues aggressive monetary easing. in the course of japan's economy experiencing such a significant change, making proactive investment in human capital, including determining wages based on the 2 percent inflation benchmark, will benefit individual firms in terms of medium - to long - run management, not to mention that it is crucial for japan's economy as a whole. conclusion in concluding, let me touch on the economy of the chubu region. the economy centered on nagoya is the core of japan's manufacturing. challenges taken by many industries and firms in anticipation of future potential can become the driving force for raising japan's potential growth rate, which is at a low level currently. for example, in the automobile industry, which is the leading industry of the region, initiatives to introduce next - generation technology - - such as environmentally friendly features as well as automatic - and safe - driving systems - - are proceeding rapidly. in addition, in aircraft - related industries, formation of industrial clusters in the region is starting to make steady progress, and there are increasing numbers of cases where small and medium - sized parts manufacturers are working in an integrated manner in terms of receiving orders and producing parts. furthermore, such proactive production activities by manufacturers are inducing fixed investment by a wide range of firms, including nonmanufacturers. i would like to close my speech by expressing my sincere hope that these dynamic initiatives by the industrial sector, combined with financial institutions'and the local government's support, will lead to further growth and development of the chubu region. thank you. japan's economy and monetary policy speech at a meeting with business leaders in nagoya november 14, 2016 haruhiko kuroda governor of the bank of japan chart 1 developments in financial markets changes in jgb yield curve 1. 0 exchange rates and stock prices % 20, 000 depreciation of the yen september 20, 2016 ( the day before the decision to introduce qqe with yield curve control ) 0. 8 yen yen / u. s. dollar nikkei 225 stock average ( left scale ) yen / u. s. dollar ( right scale ) 19, 000 appreciation of the yen 0. 6 the latest data 18, 000 17, 000 16, 000 15, 000 0. 4 0. 2 0. 0 - 0. 2 - 0. 4 1 2 year

at the beginning of november, the bank released its projections through fiscal 2018 in the outlook for economic activity and prices ( outlook report ). today, i would like to explain the bank's projections for economic activity and prices based on this outlook report, as well as its thinking on the conduct of monetary policy. i. the current situation of and outlook for japan's economic activity and prices to begin with, let me make three points on the outlook for japan's economy. please refer to chart 2. the first point is that extremely powerful economic stimulus measures are being implemented, both on the monetary and fiscal sides. the bank will adhere to powerful monetary easing under the new policy framework in order to achieve the price stability target of 2 percent, while the government will steadily implement its large - scale stimulus measures, amounting to 28 trillion yen in project size, with the diet's recent approval of the supplementary budget. synergy effects are produced in a case where a government proactively carries out fiscal spending while a central bank provides accommodative financial conditions with a view to achieving its price stability target ; this is known to make the stimulative effects on economic activity more powerful. indeed, such effects of the so - called policy mix are expected to be seen going forward. the second point is that, on the back of the effects of a policy mix as well as the recovery in overseas economies, japan's economy is likely to expand moderately, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors. specifically, as indicated in red in the chart, it is likely to continue growing at a pace above its potential through the projection period - - that is, through fiscal 2018 - - at around 1 percent. third, on the price front, the year - on - year rate of change in the cpi for all items less fresh food is likely to be slightly negative or about 0 percent for the time being, as shown in blue in the chart. thereafter, the rate of change is expected to increase toward 2 percent in the second half of the projection period in line with an improvement in the output gap, as will likely be evidenced by a further decline in the unemployment rate, and a rise in medium - to long - term inflation expectations. in what follows, i will explain the outlook for economic activity and prices in more detail. a. the current situation of economic activity and its outlook developments in the corporate sector looking at developments in