pillar is the bank ’ s thorough communication of its measures and implementation of them to achieve the price stability target. these measures are to massively increase the “ quantity ” of the monetary base through the bank ’ s large - scale asset purchases – mainly the purchase of japanese government bonds ( jgbs ) – and to change the “ quality ” of its asset purchases, mainly through the purchase of long - term government bonds that entail relatively large risks ( chart 5 ). by pursuing qqe, the bank aims at decreasing expected real interest rates through exerting downward pressure on nominal interest rates across a wide range of maturities and raising peoples ’ inflation expectations toward 2 percent ( chart 6 ). the decline in expected real interest rates will lead to a rise in prices of risky assets such as equities and hence to an increase in private consumption through the wealth effect. in addition, with the excessive appreciation of the yen being corrected, real exports have increased, albeit moderately, and exporting companies ’ earnings have improved, due partly to an improvement in profitability. in this situation, the number of foreign visitors to japan has also increased noticeably. moreover, households and firms, which have devoted their efforts to increase their savings, are expected to expand housing investment or business fixed investment in view of the decline in expected real interest rates and the improvement in their income and financial conditions. as illustrated above, qqe aims at raising the observed inflation rate toward 2 percent by increasing aggregate demand through several transmission channels in which its effects start with the decline in expected real interest rates brought about by the drastic change in the policy regime. b. developments in the underlying trend in inflation in the bank ’ s current outlook for prices, the timing in which the year - on - year rate of change in the cpi ( all items less fresh food ) reaches around 2 percent is projected to be around the second half of fiscal 2016. comparing the current projection to the previous one, the timing is likely to be delayed. that said, the delay is mainly due to the effects of the decline in crude oil prices, and the underlying trend in inflation itself can be judged to be improving steadily as the transmission mechanism of policy effects has worked as expected. here, i would like to discuss developments in the underlying trend in inflation from the following three perspectives : ( 1 ) those in consumer prices ; ( 2 ) those in the output gap, which is a gap between aggregate demand and supply capacity of the economy as a whole ; and

model, ” bank of japan working paper series no. 15 - e - 3, may 2015. for details, see naohito abe, “ saikin no kakaku shisuu no doukou to shin shohin no eikyo ni tsuite ( recent developments in price indexes and effects of new goods ), ” newsletter no. 3, the research center for economic and social risks ( rcesr ), institute of economic research, hitotsubashi university, march 2015 ( available in japanese ), and naohito abe et al., “ effects of new goods and product turnover on price indexes, ” rcesr discussion paper series no. dp15 – 2, march 2015. bis central bankers ’ speeches over a particular period, general consumer price indexes only cover the goods for which price information is available at the beginning and the end of the period ; on the other hand, the sri - hitotsubashi unit value price index quantifies the importance of the introduction of new goods that i have just mentioned. the research concludes that, mainly due to the effects of such introduction on prices, the year - on - year rate of increase in the sri - hitotsubashi unit value price index for supermarkets has recently been at about 1 to 1. 5 percent, which shows a higher rate of inflation than in cpi statistics released by the ministry of internal affairs and communications ( mic ) and in a price index that only covers continuing goods ( chart 15 ). these research results do not allow simple comparison with the cpi statistics released by the mic, in part because the coverage of the sri - hitotsubashi unit value price index is limited to goods with point - of - sale ( pos ) data. however, i take the view that they provide useful insights to firms ’ price - setting behavior through the introduction of new goods and its effects on developments in prices, and to a divergence between the inflation rate perceived by households and that measured by price statistics. ii. future conduct of monetary policy a. the price stability target and conduct of monetary policy in what follows, i explain issues regarding monetary policy. about two years ago, the bank introduced qqe to achieve the price stability target of 2 percent in terms of the year - on - year rate of change in the cpi at the earliest possible time, with a time horizon of about two years. the latest figure for the year - on - year rate of increase in the