future state of economic activity and prices and the government's fiscal condition. ⇒ the signaling effects have not been fully exerted. the first side effect is a weakening of the hurdle rate function of interest rates, which acts to stimulate business metabolism. if the borrowing interest rate for a firm is high, the firm, in order to survive, is pressured to concentrate its business resources in areas that earn enough profits to cover that interest cost ; in other words, businesses with high added value. however, if the borrowing interest rate is low, the firm has the option of continuing with businesses with relatively low added value. in sum, in an environment where an interest rate functions effectively as a hurdle rate, funds will gravitate toward highly productive businesses, consequently stimulating business metabolism. this will make resource allocation more efficient from a macroeconomic perspective. conversely, in an environment of the government's support measures and continued low interest rates, it is likely that the channeling of funds into businesses with relatively low productivity has impeded advances in business metabolism. in fact, entry and exit rates of firms in japan have remained low compared to other major countries, and labor productivity growth also has remained lackluster ( chart 10 ). chart 10 : entry - exit rates and productivity in major economies entry and exit rates < entry rate > < exit rate > 16 % labor productivity 14 10 thous. usd, 2015 ppps japan united states united kingdom germany japan united states united kingdom germany cy 08 11 14 17 20 08 11 14 17 20 cy 90 notes : 1. in the left panel, figures for japan are on a fiscal - year basis. there is a discontinuity between the figures for germany up to 2020 and those of 2021 due to changes to the definition. 2. in the right panel, figures represent gdp per person employed at constant prices. sources : eurostat ; oecd ; small and medium enterprise agency ; u. k. office for national statistics ; u. s. census bureau. the second side effect relating to interest rate functions is a weakening of the signaling effects of interest rates freely determined by the market. the level of long - term yields on jgbs and how it changes provide a signal for how the market sees factors such as the future state of economic activity and prices and the government's fiscal condition. however, with the bank's large - scale jgb purchases, the signaling effects have not been fully exerted. of course, even if the hurdle rate function

. the underlying inflation trend needs to remain stable at around 2 percent in order to achieve the bank's price stability target of 2 percent in a sustainable and stable manner - - even after the impact of higher import prices disappears completely. to that end, it is necessary above all for nominal wages to continue rising at a level consistent with the 2 percent price stability target. 1 this is because, if there is a given uptrend in nominal wages, this will contribute to higher prices, mainly for services, and thus, there will also tend to be a given uptrend in general prices. this is why the bank made clear in its forward guidance in april 2023 that, by patiently continuing with monetary easing, it aims to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. b. significance of achieving both price stability and economic growth as i have just outlined, major central banks around the world, including the bank of japan, have been conducting monetary policy with the aim of achieving and maintaining a situation in which the year - on - year rate of increase in consumer prices is stable at around 2 percent, albeit with differences in their policy directions. this stance is based on the experience of various countries to date and the insights of experts. namely, a certain degree of mild inflation taking hold as a trend is considered desirable in order to achieve both price stability and economic growth. thus, high inflation, deflation, and excessively low inflation are all deemed undesirable. the reason why many major central banks have continued with monetary tightening at this point is that current inflation in a large number of countries and regions is considered to be the result of excess demand outstripping the economy's potential production capacity, which is mainly constrained by labor supply. implementing further economic stimulus measures under these circumstances will merely result in higher inflation and will not induce a higher level of production. moreover, excessively high inflation carries its own economic since the real wage growth rate is virtually identical to the labor productivity growth rate over the long term, if the labor productivity growth rate is 1 percent, adding 2 percent to that value yields a value of 3 percent, which will be the nominal wage growth rate consistent with the 2 percent price stability target. however, the labor productivity growth rate is fundamentally determined after incorporating the efforts of individual private - sector firms, such as research and development and improvements in business and production processes, and thus its value cannot be determined in advance. inef