haruhiko kuroda : challenges to achieving the price stability target of 2 percent speech by mr haruhiko kuroda, governor of the bank of japan, at a meeting, held by the naigai josei chosa kai ( research institute of japan ), tokyo, 6 november 2015. * * * introduction it is my great honor to have the opportunity to address you today at the naigai josei chosa kai. at the monetary policy meeting held on october 30, the bank of japan produced the outlook for economic activity and prices ( outlook report ) and published its projections for japan ’ s economic activity and prices through fiscal 2017. looking at the recent economic developments, japan ’ s exports and production have been sluggish, reflecting the slowdown in emerging economies, particularly china. on the price front, the year - on - year rate of change in the consumer price index ( cpi, all items less fresh food ) has declined and reverted to about 0 percent, due mainly to the effects of the substantial decline in crude oil prices. however, as i will explain, the fundamentals of japan ’ s economy are sound and the environment surrounding firms and households has significantly improved compared to some years ago. moreover, the underlying trend in inflation has been improving steadily. quantitative and qualitative monetary easing ( qqe ), which the bank introduced in april 2013, has been exerting its intended effects toward overcoming deflation. the bank will continue to steadily pursue qqe and solidly maintain accommodative financial conditions. in this circumstance, firms and households are expected to be more proactive in economic activity, japan ’ s economy is likely to continue growing at a pace above its potential, and the price stability target of 2 percent certainly would be achieved. today, i would like to explain the bank ’ s view on the outlook for economic activity and prices, as well as on its monetary policy while touching on the outlook report. i would first like to elaborate on the bank ’ s baseline scenario regarding the outlook for economic activity and prices, which is considered most probable, and then touch on risks to the baseline scenario. i. current situation of japan ’ s economic activity and its outlook corporate profits at high levels and firms ’ positive investment stance let me start by discussing the current situation of japan ’ s economic activity and its outlook. as many of you must be aware, the slowdown in emerging economies, particularly china, has become marked recently, and

and bond markets, which is considered the beginning of the bursting of the asset - price bubble ; and ( b ) november 1997 : the bankruptcy of sanyo securities, which is considered the start of a series of financial institution bankruptcies data is called a leading indicator if the juglar cycle extracted turns down before the above two crises, or a lagging indicator if the extracted juglar cycle turns down after the two crises. fcixs comprise leading and lagging indexes. kamada and nasu propose three different types of index : type d, c, and b. here, we explain the type - d leading fcix, which is a diffusion index and constructed as follows :, where denotes the juglar cycle extracted from a leading indicator ; the number of leading indicators ; and positive and – 1 if its first difference ; the index function, which takes on + 1 if is is negative. the type - d lagging fcix is obtained in a similar fashion. the oecd ( 2008 ) has recently adopted the hp - based band pass filter in place of the phase average trend ( pat ) method to construct its composite leading indicators. the pat is a traditional method of trend detection originally developed by the nber and is calculated as follows : deviations from a 75 - month centered moving average are first calculated ; then, the obtained series is divided into expansion and contraction phases and the average is calculated for each phase ; a three - phase centered moving average is calculated and these averages are interpolated. bis central bankers ’ speeches fcixs may not be very sensitive to a revival of financial activity, because they are designed to detect signs of financial crisis. as the father of business cycle analysis, arthur spiethoff, pointed out, the timing of recoveries is often ambiguous, compared with that of crises. the japanese fcixs are constructed only from monthly, quarterly, and semi - annual financial data that can be traced back at least to the mid - 1980s. kamada and nasu have found 8 leading indicators : stock prices of the banking, real estate, and construction sectors ; the lending attitude of financial institutions ; the financial positions of firms ; current profit levels of firms ; housing loans ; and commodity prices. some of the leading indicators are affected by global shocks and enable the leading fcix to detect financial crises prevailing in overseas economies. in contrast, kamada and nasu have found 11 lagging indicators : corporate debt ; household debt ; lending interest rates ; changes in