. taking account of these recent developments, it is reasonable to expect that, although cpi inflation is likely to remain elevated over the coming months due to lagged pass - through of earlier increases in import prices, it will decline gradually in line with the expected moderation of worldwide commodity price inflation and tapering - off of import - price pass - through. however, we see risks in this main scenario, which are on the upside. as i mentioned earlier, increases in energy and materials prices are long - run phenomena, rather than temporary, reflecting the growing importance of emerging economies. moreover, since this is the first outbreak of noticeable inflation in a decade, it may eventually change inflation expectations of households and firms'price - setting behavior. taking these possibilities in mind, the bank should pay close attention to the possible upside risk of a rekindling of inflation. the conduct of monetary policy finally, i now turn to monetary policy. the bank introduced the new monetary policy framework in march 2006 and has been explaining its monetary policy stance based on this framework. in this framework, the bank first examines the prospects for economic activity and prices for one to two years ahead and assesses whether the economy will follow a path of sustained growth with price stability in the most likely scenario. this is policy assessment under the " first perspective. " then, the bank assesses the risks considered most relevant to the conduct of monetary policy. this is policy assessment under the " second perspective. " i would now like to outline the bank's current assessment based on this framework which forms the basis for the conduct of monetary policy. in the " first perspective, " the most likely outlook is that economic activity will remain sluggish for the time being, while the cpi inflation rate is expected to remain above 2. 0 percent over the coming months. thereafter, the economy is expected to return gradually onto a moderate growth path as commodity prices stabilize and overseas economies move out of their deceleration phase. cpi inflation is expected to moderate gradually as energy and materials prices level out and the pass - through of earlier increases in import prices is completed. thus, after its current sluggishness, the economy is likely to return eventually onto a sustainable growth path with price stability. in the " second perspective, " which assesses risks of the most likely outlook, we concluded that the bank should monitor carefully both downside risks to economic growth and upside risks to inflation. furthermore, if downside risks to the economy turn out to decrease, we

affect inflation going forward. while we expect that inflation expectations are likely to follow an increasing trend, given that actual inflation rates have been somewhat weak recently, uncertainty remains regarding the momentum to push up inflation expectations through the " adaptive expectation formation mechanism. " in the baseline scenario, firms'price - and wage - setting stance is expected to become more positive as inflation expectations increase. however, it should be noted that their price - and wage - setting stance could remain more cautious than the baseline scenario, depending on developments in inflation expectations. iv. the bank's conduct of monetary policy lastly, i would like to touch upon the thinking behind the bank's conduct of monetary policy. in september 2016, the bank introduced " qqe with yield curve control " - - a new framework for monetary easing - - and thereby strengthened the two previous policy frameworks of qqe and " qqe with a negative interest rate. " this new framework consists of two components ( chart 11 ). the first is an inflation - overshooting commitment. this is a strong commitment that the bank will continue expanding the monetary base until the year - on - year rate of increase in the actual cpi exceeds 2 percent and stays above that level in a stable manner. as i explained earlier, taking into account that inflation expectation formation is largely adaptive in japan, it is crucial that the public actually experience inflation above 2 percent and thereby the perception takes hold among them that prices of goods and services tend to go up every year by around 2 percent. with this in mind, the bank committed itself to continue with large - scale monetary expansion until such situation is achieved through this unique inflation - overshooting commitment. the second component is yield curve control. this aims to seek a decline in real interest rates, which has been the main transmission mechanism of policy effects since the introduction of qqe, by controlling short - and long - term interest rates. under yield curve control, the bank has been facilitating the formation of the yield curve that is considered most appropriate for maintaining the momentum toward achieving the price stability target of 2 percent, taking account of developments in economic activity and prices as well as financial conditions. at present, in the guideline for market operations, the bank sets the short - term policy interest rate at minus 0. 1 percent and the target level of the 10 - year japanese government bond ( jgb ) yields at around 0 percent, conducting jgb purchases so as to achieve this target level. almost eight months have