policy effects. in this way, the bank will continue to conduct its policy in an appropriate manner. thank you very much for your attention. overcoming deflation : japan's experience and challenges ahead speech at the 2019 michel camdessus central banking lecture, international monetary fund july 22, 2019 haruhiko kuroda governor of the bank of japan introduction i. chronic deflation, and quantitative and qualitative monetary easing ( qqe ) ii. lessons learned from japan's experience and challenges ahead conclusion chart 1 i. chronic deflation and qqe consumer prices y / y % chg. introduction of qqe - 1 cpi ( all items less fresh food ) - 2 cpi ( all items less fresh food and energy ) - 3 cy 85 note : figures are adjusted for changes in the consumption tax rate. source : ministry of internal affairs and communications. chart 2 i. chronic deflation and qqe natural rate of interest % potential growth rate r * in the dsge model r * estimated based on laubach and williams r * estimated based on imakubo et al. r * estimated based on the hp filter - 1 - 2 cy85 notes : 1. figures for the potential growth rate are based on staff estimations. notes : 2. for details of the methodologies used in this chart, see nao sudo, yosuke okazaki, and yasutaka takizuka, " determinants of the natural rate of interest in japan : approaches based on a dsge model and og model, " bank of japan research laboratory series, no. 18 - e - 1, 2018. sources : consensus economics inc., " consensus forecasts " ; bank of japan. chart 3 i. chronic deflation and qqe qqe and price developments japan's consumer prices price developments in g7 countries y / y % chg. 3. 0 average from 2000 through 2012 introduction of qqe 2. 5 cpi ( all items less fresh food and energy ) y / y % chg. average from 2013 through 2018 2. 0 1. 5 1. 0 average from 2013 / q2 through 2019 / q2 + 0. 5 % - 1 average from 2000 / q1 through 2013 / q1 - 0. 5 % 0. 5 - 2 0. 0 - 3 cy00 - 0. 5 japan u. s. germany u. k. france italy canada notes : 1. figures for japan

many firms. this makes a striking contrast with the episode that occurred last april, when many firms attempted to raise their sales prices, only to back off rather quickly as demands faltered, perhaps because this move coincided with the consumption tax hike. as firms ’ and households ’ views on prices have changed clearly, especially since the turn of the fiscal year, a positive feedback between the increase in wages and the moderate rise in inflation is now firmly in place on the back of record profits. relationship between wage increases and inflation i would like to elaborate on the relationship between wage increases and inflation of goods and services. our experience shows that wage increases have been moving almost in parallel with inflation of goods and services ( chart 12 ). it often is said that, if wages do not match up with inflation, real income will decrease, thereby exerting negative effects on consumption. however, such developments, if they occur at all, will not last for long, at least in the economy as a whole. this is because, if they were to occur, consumption will decrease, making it difficult for firms to keep raising prices. in turn, if wages increase, firms will be urged to raise their sales prices in order to secure their profit margins, leading to higher inflation. thus, there are only two scenarios in reality : either both wages and prices increase or neither wages nor prices increase. wage increases and price rises are two sides of the coin, so to speak. qqe, which the bank has been pursuing, is not intended to engineer increases merely in prices by any means. but rather, it is designed, in accordance with the mechanism of the economy, to realize a moderate inflation being accompanied with wage increases. looking ahead, as the bank pursues qqe and the observed inflation rate rises, medium - to long - term inflation expectations are also likely to follow an increasing trend and gradually converge to around 2 percent – the price stability target. accordingly, firms ’ wage - and pricesetting behavior is expected to be more proactive, and inflation rates are likely to gradually rise accompanied by wage increases. the year - on - year rate of change in the cpi for all items less fresh food is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices and, as the underlying trend in inflation steadily rises and the effects of the decline in crude oil prices dissipate, the rate of increase is expected to accelerate toward 2 percent – the price stability target.