though there is necessarily a lot of uncertainty bis central bankers ’ speeches around that estimate. the slack appears to be concentrated largely in the labour market, as survey measures indicate that businesses are operating at close to normal capacity ( chart 7 ). broadly speaking, we will be aiming to absorb that slack over the next two to three years, while keeping inflation close to the 2 % target. of course, output can rise by more than 1 – 1½ % before slack is eliminated because supply generally rises over time as well as demand. the extent and pace of any rebound in productivity will consequently be crucial in deciding how quickly slack gets absorbed. in our latest projections ( charts 8 and 9 ), conditioned on prevailing market interest rates, the central path for inflation remains close to the target throughout, while the margin of slack is diminished, though not quite eliminated, by the time the forecast horizon is reached. that market curve implies a first rise in bank rate in the spring of 2015, though i should stress that we are likely to learn a lot between now and then about the pace of the recovery, the amount of slack and the evolution of supply, and the impact on costs and prices. so i would counsel against getting too hung up about the precise date at which bank rate first rises. what, i think, is more useful for businesses to hang on to is our expectation that when bank rate does rise, it will probably do so only gradually and to a level that is likely to remain materially below its pre - crisis average of 5 % for some while – i have something like a 2 – 3 % range in mind here. that reflects three factors. first, the process of private and public balance sheet repair will continue to weigh on domestic demand for some time, while the recovery in the euro area – our main export market – is likely to remain muted. second, global longer - term safe real interest rates fell in the years before the crisis, reflecting in particular the unusually high saving rates in china, and this is likely to persist. third, the spreads between risky market interest rates and bank rate are unlikely to return to their excessively compressed pre - crisis levels. so even if we start to withdraw some of the exceptional monetary stimulus in the not too distant future, you should not expect bank rate to shoot straight back up to pre - crisis levels. it is now five years since we cut bank rate to its historic low of 0. 5 % and launched our asset purchase programme ( qe ). those

wages and prices start increasing, the public's inflation expectations are likely to rise through the adaptive formation mechanism. therefore, my judgment is that the momentum toward achieving the bank's 2 percent price stability target is being maintained. according to the april 2018 outlook report, the medians of the policy board members'forecasts of the year - on - year rate of change in the cpi for all items less fresh food were 1. 3 percent for fiscal 2018 and 1. 8 percent for fiscal 2019 and 2020, excluding the effects of the consumption tax hike. the annex to the regional economic report ( available only in japanese ) released in december 2017 presents some cases of firms'initiatives taken toward improving productivity. iii. monetary policy a. quantitative and qualitative monetary easing ( qqe ) with yield curve control in september 2016, the bank introduced qqe with yield curve control as a new framework for strengthening monetary easing. this framework consists of two main components. one of the two is yield curve control, whereby the bank facilitates the formation of shortand long - term interest rates that are considered most appropriate in light of the 2 percent price stability target. in the bank's current guideline for market operations, the short - term policy interest rate is set at minus 0. 1 percent and the target level for yields on 10 - year japanese government bonds ( jgbs ) is set at around 0 percent. this is intended to support proactive economic activities by japanese firms and households through maintaining highly accommodative financial conditions. the other main component is the inflation - overshooting commitment. this represents the bank's strong commitment to continuing to expand the monetary base until the observed year - on - year rate of increase in the cpi, for all items less fresh food, exceeds the price stability target of 2 percent and stays above the target in a stable manner. in japan, the inflation rate has remained stable at low levels over a long period of time. for japanese firms and households, the low inflation rate has become a quite natural condition that serves as a premise for conducting economic activities. going forward, in order to raise prices in a stable manner, it is necessary to encourage firms and households to change their behavior patterns by making them actually experience an inflation rate higher than 2 percent. b. future conduct of monetary policy in light of the recent relative weakness of prices, i believe that it is appropriate for the bank, for the time being, to maintain the accommodative