strong human networks that thrive among central bankers are becoming ever more important. in addition, i would like to express our sincere gratitude for the heartwarming support from the bundesbank a year and a half ago. as you know, on march 11, 2011, japan was hit by the great east japan earthquake. the president of the bundesbank regional office in hesse arranged a charity concert to be held in the office ’ s auditorium. furthermore, a large number of german people donated a great deal of money to japan through the international red cross. such generous and heartfelt support proved once again that germany is indeed our good friend, as they say in germany, “ in der not erkennt man den wahren freund ( a friend in need is a friend indeed ) ”. expansion of tokyo representative office the bank of japan would like to congratulate the bundesbank in tokyo on its 25th anniversary and on the opening of its new enlarged office. the bundesbank chose tokyo as the home for one of its two overseas representative offices, together with new york. in addition, the bundesbank made the decision to establish a trading office in tokyo this september. the decision shows that the bundesbank recognizes the importance of the japanese economy as well as the role of the tokyo financial market in the asia - pacific region. the bank of japan greatly appreciates the bundesbank ’ s decision, which i believe will be highly welcomed by all the people involved in the tokyo financial market. let me say in closing, that i strongly believe the enhancement of the new tokyo office will deepen the friendship and cooperation, not only between the deutsche bundesbank and the bank of japan, but also between germany and japan. congratulations. japan ; 2 - 8 shin - shihei note ( meiji tsuho note ) ”. http : / / www. imes. boj. or. jp / cm / english _ htmls / feature _ gra28. htm. bis central bankers ’ speeches

been declining in recent years due partly to economic globalization. this tendency has been taken into account in the projection for prices mentioned earlier, but the sensitivity of prices may turn out to be lower than assumed in the projection. if, despite prolonged economic expansion, wage growth were to remain low relative to the pace of productivity gains, downward pressure on prices from labor costs would persist. moreover, if the positive influence of the strength in the corporate sector feeds through into the household sector slower than expected due to sluggish wage growth, supply and demand conditions for consumer goods and services may not improve in line with the diminishing slack in the economy. in such a situation, prices may not be responsive to the improvement in the economic situation. on the other hand, if the economy continues to grow at a pace exceeding the potential through fiscal 2008, it is likely that the rate of utilization of resources such as production capacity and labor will rise further and the output gap will show further tightening of supply and demand conditions. inflation expectation, which has been low and stable, may increase with higher resource utilization, particularly in labor. moreover, although firms are likely to continue to restrain labor costs, they may change their attitude with the aim of hiring or retaining skilled workers. these potential changes would exert upward pressure on prices. prices of crude oil and other international commodities may deviate either upward or downward from the projection depending on factors such as geopolitical risks. close attention should be paid to developments in these prices, since they will have a substantial effect on domestic corporate goods prices and consumer prices. vii. conduct of monetary policy let me now explain how the bank will conduct monetary policy based on the outlook for the economy and prices i have outlined, giving due regard to the possibility of upward or downward deviation. in march 2006, when the quantitative easing policy was terminated, the bank introduced the " new framework for the conduct of monetary policy. " it consists of three elements. the first is releasing the " understanding of medium - to long - term price stability, " the second, assessment of the economic and price situation from two perspectives taking account of the " understanding of medium - to long - term price stability, " and the third, outlining the bank's thinking on the future course of monetary policy. the " understanding of medium - to long - term price stability " is the level of inflation that each member of the policy board understands, when conducting monetary policy, as being consistent with price stability over the medium to long