that wages and prices will not increase easily, this feedback will not operate smoothly. in this context, recent studies point out that people's inflation expectations tend to depend not only on developments in actual prices, but also individuals'experiences over a long period. thus, there also is a possibility that average inflation expectations will not rise readily as the ratio of the generation that has spent much of their life under deflation increases. however, there is no need to be too pessimistic about the current situation. it is a significant change in japan's economy that the year - on - year rate of change in the cpi excluding fresh food has remained at a level close to 1 percent for more than one year, owing to an improvement in the output gap. the behavior and mindset under deflation also have been changing gradually, as evidenced by the fact that base pay increases have been conducted for six consecutive years ( chart 10 ). under such circumstances, although inflation expectations have remained more or less unchanged on the whole, those of mainly households recently have risen somewhat. as people have gained the collective experience of increases in wages and prices in the past few years, it is likely to contribute to pushing up inflation expectations going forward. in this way, the momentum toward achieving the price stability target has been maintained, whereby a positive output gap results in an increase in actual prices, leading to a rise in inflation expectations. the bank projects that the year - on - year rate of change in the cpi is likely to increase gradually toward 2 percent, although this will still take time. iii. the bank's conduct of monetary policy now, i would like to explain the bank's conduct of monetary policy. the bank currently adopts the policy framework of " quantitative and qualitative monetary easing ( qqe ) with yield curve control. " under the framework, it sets the short - term policy interest rate at minus 0. 1 percent and the target level of 10 - year jgb yields at around zero percent, and has conducted purchases of japanese government bonds ( jgbs ) in the market so that the yield curve would be formed in line with this guideline ( chart 11 ). by conducting this operation, short - and long - term interest rates in financial markets have been stable at low levels and lending rates for firms as well as issuance rates for corporate bonds also have remained at extremely low levels. the bank aims at achieving the price stability target of 2 percent at the earliest possible time through

decisions as well as actual decisions. central banks worldwide have been making efforts to improve communication on monetary policy, giving due consideration to the situation in each country, to improve the effectiveness of monetary policy and to be accountable. at the most recent monetary policy meeting, the bank decided to adopt several enhancements to its communication strategy on monetary policy. in the latter part of my talk today, i would like to expand a little on the topic of central bank communication. the contents of communication on monetary policy i would first like to discuss three important elements on which the communication on monetary policy is based. the first of these is the objective or the aim of monetary policy. the second is the assessment of the current situation of the economy and prices and the outlook for both. and third is the thinking behind the future conduct of monetary policy. the first element, the objective of monetary policy, is, in many countries, stipulated in the law governing the central bank as contributing to sustainable economic growth through stability in prices. in japan, article 2 of the bank of japan act clearly states that it is " achieving price stability, thereby contributing to the sound development of the national economy. " on the other hand, the ways price stability is numerically expressed differ notably from country to country. in the case of the bank, the level of inflation rate that each policy board member understands as being consistent with price stability over the medium to long term is compiled and published as the " understanding of medium - to long - term price stability. " the current understanding falls in the range approximately between 0 and 2 percent, with most policy board members'median figures at around 1 percent. the second important element is to communicate the assessment of not only the current situation of the economy and prices but also their outlook. this is because it takes some time for monetary policy to actually affect economic activity and prices. in addition, since the outlook for economic activity and prices always entails uncertainties, it is necessary, when communicating it, to not only present a single scenario, but also to clarify the risks that might result in an upside or downside deviation. in the case of the bank, economic and price situations are communicated through means such as the monthly report of recent economic and financial developments and the press conference held after each monetary policy meeting. also in the semiannual outlook for economic activity and prices ( outlook report ), which is published in april and october, projections for the current and the next fiscal year as well as risk factors are published.