having experienced a severe employment situation and currently facing intensifying global competition, have tended to prefer stable employment to a wage increase. wage growth has therefore remained moderate despite the continuing high corporate profits. nonmanufacturing firms, which have relatively little access to the global market, are also experiencing a severe market environment. in the nonmanufacturing sector, not only has deregulation led to increased supply with new entrants into the market, but also the decline in public expenditure has reduced demand. given that changes in wages have become more closely linked to the level of corporate performance, the pace of increase in wages has been slower among nonmanufacturing than among manufacturing firms, reflecting their lower profits. in order to maintain competitiveness in the severe market environment, firms have continued to restrain labor costs. as a result, the pace of recovery in the household sector seems to be slower than people's expectations, despite the strength in the corporate sector. these features of the current economic expansion may also be affecting the environment surrounding prices. as firms have been restraining wages and also increasing productivity, upward pressure on prices seems to have been contained. also, given that the driving force of current economic growth has been the corporate sector, especially globally active firms, and that the positive influence of the strength in the corporate sector has been relatively slow in feeding through into the household sector, supply and demand conditions for consumer goods and services are likely to improve more slowly than overall supply and demand conditions. in other words, while, from the demand side, growth in consumer demand is likely to be moderate given the slow pace of the flow of income from the corporate sector to the household sector, supply is likely to increase given the rise in imports due to economic globalization coupled with new entrants coming into the market as a result of deregulation. looking at firms'perception of resource utilization, an indicator for supply and demand conditions, the weighted average of the diffusion indices of production capacity and employment conditions in the tankan ( short - term economic survey of enterprises in japan ) suggests that the pace of improvement in resource utilization in consumption - related industries, such as retailing and services, is slower than the average for all industries. in recent years, the sensitivity of consumer prices to a rise in the utilization of resources such as production capacity and labor, or to changes in the output gap, has been declining, and this seems to have been due not only to deregulation and technological innovation but also

that poses the problem of how and when normalizing monetary policy. on the second point, a challenge relates to possible spillover effects on emerging - market economies of changes in the monetary policy stance in advanced countries. large capital flows went to emerging - market economies in the last years, in search for yield, putting upward pressure on asset prices and exchange rates in those economies. they might suddenly reverse when monetary conditions change in advanced economies. the risk is that the process becomes disorderly, with impaired liquidity in certain markets or asset classes, rapidly diffusing contagion to other correlated asset classes. these risks call for clear and effective communication strategies by central banks, while the authorities in emerging economies should further strengthen policy buffers and further advance structural reforms. another delicate policy challenge regards the relation between monetary and fiscal policies. the combination of high public debt – accumulated in many advanced economies in response to the financial crisis – and very low interest rates has strengthened the interdependencies between the two policies. exceptionally low nominal interest rates have contained debt servicing costs, and that ’ s good news ; the flip side is that fiscal positions are highly exposed to changes in the monetary policy stance, especially if changes are abrupt. finally, what if the current low interest rates were the new long - run equilibrium? in this case i would see serious challenges for monetary policy management. central banks might more often encounter the zero lower bound on nominal rates, which would imply less room to maneuver the policy rate to counteract deflationary shocks. the economy would be less resilient to negative shocks. central banks might have to increasingly resort to what we call unconventional policies. but we do not know how effective these tools are as a normal business cycle stabilizer, and what macroeconomic risks they might entail. let me conclude signaling another risk. economic policies became exceptionally accommodative after the financial crisis in order to save the world from another great depression. financial panic was destroying households ’ and corporates ’ confidence and curtailing aggregate demand, so macroeconomic policies, both fiscal and monetary, had to fill the gap, as long as needed. the phase of very low nominal interest rates has been necessary, and still is necessary in many areas of the world including the euro area, in order to support growth, fight deflation risks and sustain employment. but low growth, and the ensuing low interest rates, risk feeding on themselves if allowed to linger for too long : households may eventually feel compelled to save more