exports, which may suggest that the country ’ s economic structure has been changing against the background of increasing globalization. these developments in the economy worldwide imply sustained structural changes, and considerable uncertainty regarding the outlook for economic activity. moreover, there are many unpredictable risk factors, such as geopolitical risks, the political situation in europe, and developments in crude oil prices. in communicating with the public about the outlook for the economy amid a situation of structural changes and various risk factors, it is more important to see whether the intended mechanism functions smoothly than to focus on specific numerical values. the second challenge is the balance between transparency and flexibility of the policy approach. clarifying the future policy approach enhances the transparency and predictability of monetary policy. such clarification may also strengthen the policy effects, just as in the case of forward guidance under the zero interest rate policy. however, if the information provided by a central bank is too specific, the public may, contrary to the central bank ’ s intention, focus solely on the specifics, which could lead to fluctuations in the market. this may impair the flexibility and credibility of the policy response. such specifics include the announcement of particular economic indicators, numerical values, or time spans on which it bases its assessment. indeed, central banks need to provide information about future policy responses based on a comprehensive assessment of a wide range of indicators and the basic mechanism of the economy, rather than on specifics – that is, specific economic indicators or specific numerical values. this is particularly true when the economy is undergoing fundamental structural changes or when there is heightened uncertainty regarding the outlook. in fact, as for forward guidance under qqe in japan, the bank adopts the following broad approach : “ the bank will continue with qqe, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. it will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate. ” this policy approach of making a comprehensive assessment under the constraint of the policy target is in itself the essence of a flexible inflation targeting framework within which “ constrained discretion ” can be exercised. major countries including japan currently adopt this policy approach based on the framework of flexible inflation targeting, and the significance of relying on a comprehensive assessment is likely to increase. see chapter 1 in the world economic outlook released by the international monetary fund in october 2014. there has been vigorous debate over the deceleration in

with improvements in corporate profits, employment, and wages ” will spread widely throughout the country, and a new inflation rate that the general public perceives as representing price stability will take hold. in the latter half of 2014, the price rise that includes the consumption tax hike might have been perceived only as an increase in costs, or incited concern over inflation amid the delay in economic recovery, thereby leading to deterioration in sentiment. what japan needs to achieve, however, is a sustainable, mild inflation with the virtuous cycle of economic activity operating. it is vital that the virtuous cycle continue to operate in order for the conversion of the prolonged deflationary mindset to take place, and for people ’ s medium - to long - term inflation expectations to rise to around 2 percent and take root. in order to maintain the virtuous cycle of economic activity and dispel deflationary sentiment, the risk of a spreading of “ the keynes ’ fallacy of composition ” should be kept to a minimum. the fallacy of composition arises when an action taken by a firm or household that seems rational to the individual firm or household results in an undesirable outcome if all firms or households collectively take the same action. individual firms may be reluctant to implement wage increases, including a raise in the level of base pay, that will lead to an increase in fixed costs, taking into account the competition among rival firms and the need to increase savings for future use. however, if many firms feel the same way and do not implement wage increases, household income will not increase and household sentiment will remain cautious, leading to sluggish spending. as a result, firms ’ sales as a whole will be stagnant. if many households hold back their consumption to increase savings for future use, the overall income of the economy will be sluggish since the amount a person spends will be somebody else ’ s income. if many firms postpone the fixed investment that is necessary for their business or continue lowering their transaction prices in order to prepare for unexpected events and other uncertainties, the same problem will occur. consequently, individual firms ’ sales and individual households ’ income will be sluggish, hindering the economy from becoming buoyant. in order to minimize the risk of the fallacy of composition spreading, aggressive policy measures already have been taken. measures such as flexible fiscal policy, expansion of the monetary easing, and joint initiatives toward raising wages led by the government, the business community,