years fallen somewhat below the target. the implication is that monetary policy has been tighter – interest rates have been higher – than was necessary, which, they say, in turn at least helps to explain the behaviour of the exchange rate. i have genuine sympathy with their concerns, and i very much admire the huge efforts that many of the adversely affected businesses have made to overcome the disadvantage coming from the strong exchange rate. if it's any comfort, i can assure you, that the resulting imbalance within the economy has been a persistent pre - occupation also for us on the mpc. we necessarily, of course, take account of the exchange rate in trying to predict the future course of the economy. its strength against the euro has been a factor which has dampened both external demand and the rate of inflation, so that interest rates have certainly been lower than they would have been if the exchange rate had been weaker. it is nevertheless true that, in common with most other analysts, we have not fully anticipated the persistence of euro weakness. we don't of course have a crystal ball – but even if we had, it is important to recognise that the link between relative interest rates and exchange rates is much more complicated – and indeed more unpredictable – than is often suggested. our own exchange rate against the euro today, for example, is stronger than it was before our reductions in interest rates this year ; and the dollar, too, is substantially stronger against the euro than it was before the much larger cuts in us interest rates. so, in setting interest rates, we can – and do – make allowance in our projections for what has happened, and, on a best guess, for what is likely to happen, to the exchange rate, and that may cause the exchange rate to soften or it may cause domestic demand growth to strengthen, thereby offsetting the exchange rate's dampening effect on the economy. but what we cannot do – any more than the ecb – is to target the exchange rate, without putting the stability of the economy as a whole at risk of re - emerging inflation. that would not be in the interests even of the internationally - exposed sectors of the economy except possibly in the short term. they operate in the same labour market as more domestically - oriented businesses ; and what matters to them is the real, rather than the nominal exchange rate, and it is not at all clear how that would be affected. mr chairman, given the uncertainties, i am reluctant to

a level that exceeds the past average. as for the price - setting stance of firms that are closely related to consumption, the output prices di for consumption - related industries shows that the proportion of enterprises answering that output prices have risen has continued to exceed the proportion of those answering that such prices have fallen, and the gap has been expanding, albeit at a moderate pace. regarding the outlook, it is expected that households'tolerance of price rises will increase steadily and firms'stance gradually will shift toward further raising prices as the employment and income situation is likely to continue improving with the output gap remaining positive. accordingly, households'and firms'inflation expectations are likely to increase gradually. moreover, developments in crude oil prices and global financial markets affect prices. crude oil prices have been more or less flat - - albeit with fluctuations - - since around this summer, although they have been lower compared to the level seen around spring. in global financial markets, investors'risk aversion had continued to be observed, but the markets recently have been calm compared to a while ago. given these observations, the bank judged at last week's mpm that there had been no further increase in the possibility that the momentum toward achieving the price stability target would be lost. on this basis, it expects that the year - on - year rate of change in the consumer price index ( cpi ) is likely to increase gradually toward 2 percent, mainly on the back of the output gap remaining positive and inflation expectations rising, despite the cpi inflation rate being affected by such factors as the decline in crude oil prices for the time being ( chart 10 ). in the latest outlook report, it is projected that the year - on - year rates of change in the cpi excluding fresh food will be 0. 7 percent for fiscal 2019, 1. 1 percent for fiscal 2020, and 1. 5 percent for fiscal 2021. that said, risks to the outlook for prices are skewed to the downside, and thus close attention should continue to be paid to the possibility that the momentum toward achieving the price stability target will be lost. in particular, it is necessary to take into account the possibility that, if downside risks to economic activity materialize, they will affect prices, mainly through downward pressure on the output gap. therefore, the bank will continue to carefully examine economic and price developments and closely monitor whether there will be no increase in the possibility that the momentum toward achieving the price stability target will be lost. iii. the bank's