the pace of recovery may decelerate temporarily. this expectation is based on the fact that the positive cycle of production and consumption has not been deterred by the reaction to the increase in demand ahead of the consumption tax rate rise. despite the continued economic recovery, the private sector has not gained sufficient confidence in its future growth, reflecting persistent uncertainty about structural adjustments. under the structural adjustment pressures, expected growth rates are unlikely to rise at the same pace in different industries and firms. however, from a long - term perspective, the establishment of a new industrial structure based on the principle of comparative advantage can be expected to enhance growth by promoting the efficiency of resource allocation. in order for japan ’ s economy to achieve sustainable growth, it is vital to create investment opportunities and raise expected growth rates of economic entities through effective reforms of the economic structure. such efforts are essential in adapting to the medium - to long - term changes in economic environment, including increasing global competitive pressures, and the further aging of the population, and in maintaining japan ’ s economic strength. considering the important role that the financial sector must play in the reforms of the economic structure, it will be necessary to continue implementing measures to stabilize the japanese financial system, and increase domestic and overseas confidence in the system. at the same time, the financial system must be reorganized to enhance its functions and competitiveness, by improving the infrastructure in order to promote competition in accordance with the japanese “ big bang ” deregulation package.

role in that regard, but it can make important contributions. that is, by dispelling the deflationary mindset. when the deflationary mindset is widespread, cash hoarding and maintaining the status quo are considered rational. proactive behaviors by taking risks do not result in rewarding a sufficient return. in fact, under the period of protracted deflation, firms have become reluctant to take risks, such as investing in capital stock and in research and development, resulting in a decline in the potential growth rate. dispelling the deflationary mindset and creating an economy, in which private entities can act based on an assumption of 2 percent inflation, will lead to reviving the animal spirits of firms that were lost in the prolonged deflationary period and thereby enhancing growth potential. that is evident if you recall that positive developments have become widespread among firms since last year as prices started to rise. the bank will firmly support such positive developments through achieving the price stability target of 2 percent at the earliest possible time. while some question whether it will be desirable to increase prices when the potential growth rate is low, my answer will be a clear “ yes. ” overcoming deflation and raising growth potential is not an issue of which comes first. overcoming deflation is an important prerequisite for raising growth potential. the bank will achieve the price stability target of 2 percent. in that situation, i am convinced that japan ’ s economy will achieve a higher potential growth rate. thank you. bis central bankers ’ speeches