. the year - on - year rate of increase in the cpi slowed after its peak in april this year. the background to this is somewhat weak developments in demand following the consumption tax hike and the substantial decline in crude oil prices since the summer. to avoid any misunderstanding, let me be clear that the additional easing was not a response to the decline in crude oil prices itself. japan, a commodity - importing country, gains a large advantage from the decline in crude oil prices, especially when the decline is caused mainly by supply - side factors such as developments in oil - producing countries as it is this time. on the price front, while the decline in crude oil prices put downward pressure in the short term, it will lead to an improvement in the output gap and to an increase in underlying prices from a somewhat longer - term perspective. the reason for deciding on the additional easing despite this is that the bank judged that we are still in the midst of converting the deflationary mindset and there is a risk that a slowdown in the actual rate of increase in the cpi might delay this conversion. two engines have so far brought the conversion of the deflationary mindset. the first is the bank ’ s strong commitment to achieve the price stability target of 2 percent at the earliest possible time and in a stable manner, and the second is the actual inflation that has been realized under the commitment. although the decline in crude oil prices is desirable over time, if a pause in the actual price increase becomes protracted, the latter engine may be weakened. if this raises doubts on the achievement of 2 percent inflation, there may be a risk that the mechanism of the qqe as a whole will be weakened. therefore, the bank decided to pursue monetary easing more powerfully under the qqe, and to reiterate its unwavering resolution to achieve the price stability target of 2 percent at the earliest possible time through its “ action. ” looking at responses in financial markets, it appears that the bank ’ s resolution to achieve the price stability target of 2 percent at the earliest possible time has been well understood. i believe that many of you also understand it very well. i strongly expect that there will be positive effects of the expansion of the qqe on wage negotiations next spring and on firms ’ price setting. if it is the case, conversion of the deflationary mindset under the qqe will keep going forward. that is the intended effect of the expansion of the

has not been observed since the bubble period in the early stage of the 1990s, and manufacturers ’ business sentiment remains resilient, although japan ’ s production has been unfavorable ( chart 8 ). the resilience in business sentiment can be attributed in part to firms ’ high consolidated profits, reflecting the favorable business performance of their overseas subsidiaries. firms ’ favorable performance on a consolidated basis seems to have been playing a complementary role to the recent weakness in exports. this may mean that a new pattern of generating income is strengthening, through the repatriation by japanese firms of their overseas subsidiaries ’ profits in the form of dividends ( chart 9 ). although some weakness certainly remains in japan ’ s economic indicators, i feel that it is necessary to make a more comprehensive assessment, taking into account the current globalization of firms. risk factors to the outlook for japan ’ s economy also warrant attention. the first factor is developments in exports. japanese manufacturers are likely to continue shifting production sites to overseas – although the pace is slowing – amid uncertainty over whether overseas economies will steadily increase their pace of growth. therefore, it is uncertain whether the recent further depreciation of the yen will support the recovery in exports. the second factor is the effects of the yen ’ s depreciation. while the decline in energy prices will raise the real purchasing power of households and firms, clearly exerting positive effects on japan ’ s economy, the depreciation of the yen will become a downside factor in terms of trade for the nonmanufacturing industry, which accounts for a large share of gdp and is a driving force of bis central bankers ’ speeches the current economic recovery. the third factor is developments in household and business sentiment. sentiment indicators – especially of manufacturing – had been resilient, despite the weakness in japan ’ s economic indicators ; however, sentiment now seems to have weakened, as evidenced by the fact that developments in the diffusion indices ( dis ) in the latest economy watchers survey have become more sluggish recently. developments in these dis warrant attention as these indices are leading indicators of the economy in the short term. looking at the comments made by the survey ’ s respondents, those regarding the second round of the consumption tax hikes, irregular weather, and depreciation of the yen stand out. the effects of these factors on sentiment warrant attention. d. developments in prices the year - on - year rate of increase in the consumer price index ( cpi, for