expected to be put on excessive protectionist moves at some point. in fact, positive progress was seen recently in trade negotiations between the united states and canada, mexico, europe, and japan. while the focus will be on developments in negotiations between the united states and china for the time being, the bank will thoroughly examine the consequences of protectionist moves and their effects on japan's economy. in addition, risk factors originating from overseas economies have been pointed out. these include the possibility of such moves as policy rate hikes in the united states leading to capital outflows from emerging economies, the possibility of the united kingdom being driven into the so - called no - deal brexit, and various geopolitical risks including those of the middle east. taking account of these various risks, stock markets of various economies have continued to see large fluctuations since mid - october, triggered by a significant fall in u. s. stock prices ( chart 6 ). the favorable economic fundamentals of japan as well as the united states and europe have not changed substantially, and other financial markets such as the foreign exchange and government bond markets have been relatively calm. however, as uncertainties regarding overseas economies have heightened, it is necessary to carefully monitor future developments, including those in investors'sentiment and corporate profits. ii. price developments now i will move on to price developments. the year - on - year rate of change in the consumer price index ( cpi ) has continued to show relatively weak developments compared to the economic expansion and the labor market tightening, and that excluding fresh food and energy prices has been at around 0. 5 percent ( chart 7 ). this is likely to be attributable to two main factors ( chart 8 ). first, the experience of prolonged low growth and deflation has had a substantial impact on people's sentiment ( chart 9 ). for instance, according to a survey conducted by the government, the significant reasons why firms do not pass on cost increases to sales prices despite rises in personnel expenses and prices of raw materials are that they wish to maintain relationships with business partners and consumers and are concerned about reductions in sales volumes. what lies behind this likely is that people's tolerance of price rises has decreased, due mainly to the effects of prolonged deflation. in order to ease this cautious stance toward price rises, households'income situation needs to improve. while there seems to be a need on the firms'side to keep sufficient funds on hand considering the experience of past low growth

. the bank fully recognizes that, by continuing such monetary easing, financial institutions'strength will be cumulatively affected by low profitability, mainly through a decrease in their lending margins, and that it could have an impact on financial system stability as well as the functioning of financial intermediation. that is, if financial institutions become more active in risk taking to secure profits amid the low interest rate environment and severe competition continuing, the financial system could destabilize should large negative shocks actually occur in the future. meanwhile, prolonged downward pressure on financial institutions'profits under the continued low interest rate environment could create a risk of a gradual pullback in financial intermediation, partly through making them reluctant to lend. these points are analyzed in detail in the bank's financial system report released twice a year. although these risks are judged as not significant at this point, mainly because financial institutions have sufficient capital bases, the bank will make efforts to grasp the latest situation through its on - site examinations and off - site monitoring of financial institutions and encourage them to take concrete actions as necessary. in addition, as mentioned in the latest outlook report, it is necessary to pay close attention to future developments regarding these risks and side effects, from the viewpoint of conducting monetary policy as well. over the past five years, japan's economy has clearly improved. corporate profits have been at record highs, and the employment situation has improved substantially. prices have improved steadily compared to five years ago, when the economy was suffering from deflation. japan's economic activity and prices are no longer in a situation where decisively implementing a large - scale policy to overcome deflation was judged as the most appropriate policy conduct, as was the case before. however, it has been taking time to achieve the price stability target of 2 percent. in such a situation where economic and price developments have been somewhat varied, it has become necessary to persistently continue with powerful monetary easing while considering both the positive effects and side effects of monetary policy in a balanced manner. going forward, the bank will examine the risks considered most relevant to the conduct of monetary policy and conduct its policy in an appropriate manner, taking account of developments in economic activity and prices as well as financial conditions. conclusion lastly, i would like to conclude my speech by touching upon the economy of the tokai region. the region has always been the frontrunner of economic recovery in the current recovery phase. production in the regions'manufacturing sector has recovered to a level exceeding that seen immediately