overseas. corporate profits on a global basis have been favorable. as shown in the september tankan survey released last week, business sentiment as a whole has maintained its favorable level, despite being affected by the decline in demand following the consumption tax hike. it suggests that many firms basically regard the decline in demand following the consumption tax hike as a temporary one. reflecting the favorable corporate performance, stock prices have remained resilient. in that situation, firms have been taking a positive stance in their business fixed investment plans, and it has remained unchanged in the latest tankan survey. the increase in business fixed investment might be attributable to several factors. corporate profits have been favorable and financial conditions have been accommodative. as a result of restrained investment for some years, capital stock has become outdated, prompting increasing demand for renewal investment. there is also increased demand for investment in laborsaving machinery and equipment due to the labor shortage i mentioned before. therefore, japan ’ s economy is expected to continue growing at a pace above its potential as a trend since the virtuous cycle from income to spending has been operating steadily in both the household and corporate sectors. price developments next, i will talk about the price developments in japan. trend inflation is considered to be determined by the output gap of the economy as a whole and inflation expectations. as for the output gap, with the labor market tightening as i mentioned before, the slack has been almost absorbed. looking at the developments since the introduction of qqe, inflation expectations have been rising on the whole, albeit with monthly fluctuations. against such a backdrop, the year - on - year rate of change in the cpi, excluding volatile food, which was minus 0. 4 percent in april last year, has recently become 1. 1 percent excluding the direct effects of the consumption tax hike. the cpi inflation has more or less leveled off in a narrow range of around 1¼ percent for eight months since the beginning of this year. looking at such leveling - off inflation rates, some view that increasing momentum for the cpi inflation has been lost after accelerating strongly last year. the leveling - off cpi inflation is due to the dissipating base effect. the effects of yen depreciation and the energy price increase that exerted upward pressure on consumer prices in the previous year have been falling off, compared with a year earlier. by contrast, trend inflation rates have continued to increase steadily. in fact, the developments in the inflation rates so

potential growth rate rising through an improvement in productivity as a wide range of entities continue with initiatives concerning structural reforms and growth strategies. take recent developments for instance ; namely, the output gap being positive and labor market conditions remaining considerably tight, as evidenced by the existing labor shortage. such underlying developments seem to have given rise to changes in employment practices, including increased mobility in the labor market brought about by the efficient allocation of excess labor resources from sectors with low productivity to those with high productivity. alongside this, progress in working - style reforms and other initiatives suggests a deepening awareness among both workers and managers of the need to raise productivity. pursuing structural reforms and growth strategies is not an easy task and a fairly extensive process. nonetheless, it is safe to say that the necessary conditions for a rise in productivity, which will bring about a boost in japan ’ s growth potential, gradually are being fulfilled. i believe these developments will play a role in underpinning the virtuous cycle from income to spending. specifically, a rise in productivity will act as a starting point of such cycle, stimulating price rises through increases in wages and private consumption. effects of monetary policy are not directly transmitted to economic entities — namely, individual firms and households — and thus may take time to materialize in the form of backing up their efforts. however, they should be able to support various initiatives as the bank ’ s conduct of monetary policy stimulates aggregate demand and suitably tight supply - demand conditions are maintained. therefore, with a view to achieving its price stability target and realizing sustainable economic growth in a coordinated manner, the bank needs to persistently continue with its powerful monetary easing and consistently provide support for the initiatives of a wide range of economic entities. 5 / 5 bis central bankers'speeches