. except for the period after the previous consumption tax hike in 1997 and the surge in global commodity prices around 2008, this is the first time since 1993 that the cpi has risen by more than 1. 0 percent yearon - year several months in a row. with firms and households experiencing these price increases, their inflation expectations are changing in an adaptive manner. in this situation, medium - to long - term inflation expectations are likely to follow an increasing trend and gradually converge to around 2 percent – the price stability target. these developments seem to have started to influence actual wage and price settings. as mentioned earlier, an increasing number of firms are raising base wages and some firms recently have changed from a strategy that puts first priority on low prices to one that aims at raising sales prices while increasing value - added. regarding the cpi for april, an issue of key interest has been whether firms have been able to pass on the consumption tax hike by raising sales prices in line with the tax hike, and the index for tokyo, which is released ahead of the nationwide index, suggests that this is indeed the case. bis central bankers ’ speeches the phillips curve let me summarize this price rise mechanism in terms of the phillips curve, which illustrates the relationship between the output gap and inflation. this relationship is shown in chart 8, with the red dots representing the four positions observed over the past year. while it is difficult to gauge the shape and position of the phillips curve on a real - time basis, we find that the red dots lie above the phillips curve based on observations for the past 18 years. thus, taking into account the aforementioned rises in various indicators of inflation expectations and changes in wage - and price - setting behavior, the chart suggests that two things appear to have happened : we seem to have moved upward along the phillips curve, reflecting a boost in inflation due to the improvement in the output gap, and the phillips curve appears to have shifted upward due to a rise in inflation expectations. it is likely that these developments will continue and the inflation rate will follow a path toward achieving the price stability target of 2 percent. iv. monetary policy management and the growth potential of japan ’ s economy as i have mentioned, qqe has been having the intended effects. therefore, i believe it is important to continue with qqe as long as it is necessary for maintaining the price stability target of 2 percent in a stable manner. on that basis, should the outlook change due to certain risk factors the bank, if

a rate and in a scope that few people considered possible a few decades ago. since the reform policy began at the end of the 1970s, average growth has been 9 per cent a year. china has accounted for one third of the world ’ s real growth in recent years. the country has rapidly transformed into the second largest economy in the world, become the third largest trading nation and one of the largest recipients of foreign direct investment. 3 the strong growth in china has been driven by investment and exports. investment comprises just over half of gdp, which is much higher than the shares in oecd countries or in other rapidly - growing economies. the high level of investment has been almost entirely financed through domestic savings. the saving ratio in china amounts to around 45 per cent of gdp, which is a much higher level than in most other countries. according to estimates, chinese households save one third of their incomes. one reason for the high level of saving is the lack of a social safety net and a general pension system. as a consequence of the high level of saving, private consumption is relatively low. china has had relatively strong growth in exports ; in the past five years alone exports have trebled. 4 the country is currently a nation as open as, for instance, france and italy, measured in the percentage of foreign trade in gdp and considerably more " open " than the united states. china has come to be called “ the factory of the world ” as an increasing number of foreign companies have chosen to purchase goods and locate parts of their production there. for instance, china manufactures more than two thirds of all photocopiers, microwave ovens and dvd players, and 40 per cent of all of the world ’ s computers. 5 however, a large part of the input goods for these products are imported from neighbouring countries, but the prevalent picture that china can only compete with lowcost products is slowly changing. in recent years china has gone from specialisation in simple, labourintensive low - cost products to also producing more technically - advanced and internationallycompetitive products. the chinese authorities conduct an active trade and industry policy to build up the domestic industrial and technological capacity, for instance in the fields of telecommunications, energy, motor vehicles and pharmaceuticals. their goal is to have 30 - 50 chinese countries among the world's 500 largest within 5 - 10 years. in addition to investments in research and development, china ’ s human capital has also been reinforced by an increasing return flow of highly