let me note that there are various approaches to estimating the output gap, and estimates are subject to a margin of error. however, in light of the overall macroeconomic information – such as tightness of the current labor conditions and the reduction in excess production capacity shown in the march 2014 tankan ( short - term economic survey of enterprises in japan ) – it could be considered that the output gap, regardless of whether it has or has not reached about zero, has already narrowed to a considerable degree. this narrowing seems to be affecting prices to some extent. nevertheless, it should be noted that this situation seems to reflect not only the demand - side pick - up but also supply - side constraints, and therefore attention needs to be paid to the possibility that the mechanism of economic and price recovery could be different from what the bank initially aimed for. in other words, it is possible that the potential growth rate of japan ’ s economy has declined, especially after the lehman shock. this is because manufacturers ’ stagnant fixed investment in japan led to a slowdown in accumulation of capital stock, which in turn decreased labor productivity. tight labor conditions, due to the recovery led mainly by nonmanufacturing, seem to be affected by lower labor productivity in nonmanufacturing compared to manufacturing ( chart 12 ). it is true that wage increases induced by tight labor conditions are a profit - squeezing factor and thus not preferable for firms. if corporate profits are constrained by labor costs, business fixed investment will be restricted and stock prices will be affected, and consequently wage hikes will not be sustainable. it is desirable to see wage increases that are in line with growth in labor productivity. in this regard, in achieving sustainable wage increases, it is indispensable to have a boost in labor productivity in nonmanufacturing, such as through investment aimed at labor saving. if such efforts toward improvement in labor productivity in nonmanufacturing feed back into manufacturing and a virtuous cycle in the overall economy is generated, the growth potential will be raised, thereby enhancing the probability of achieving the price stability target of 2 percent in the medium to long term. currently, in my bis central bankers ’ speeches view, people ’ s perception of labor conditions is tighter than what is suggested by statistics, as labor shortages are being reported widely. it can be considered that japan ’ s economy is at a critical point in terms of whether its growth will slow due to supply - side constraints or it steps

six consecutive months. here, let me recap how qqe will work on nominal long - term interest rates through its transmission mechanism. nominal long - term interest rates combine two elements : one is the average of future short - term rates and the other is premiums ( chart 14 ). based on this understanding, the bank has specified its forward guidance – namely, that it will continue with the qqe, aiming to achieve the price stability target, as long as it is necessary for maintaining that target in a stable manner. this in effect will exert downward pressure on the average of expected future short - term rates. in addition, premiums will be prevented from widening through the bank ’ s massive purchases of jgbs with relatively longer maturities. however, under such unconventional policy, nominal interest rates are likely to face upward pressure as the effects of the policy start to appear, preceding the improvement in the economy and prices. referring to the elements that i have just explained, expected future short - term rates are likely to rise if market participants judge that an exit from current easing policy is at hand. in the case of a rise in nominal long - term interest rates, even when a central bank increases its purchases of government bonds, or otherwise is put under pressure to increase such purchases, in order to suppress the government ’ s borrowing costs, the premiums might possibly rise if it is judged by market participants that the central bank ’ s purchases will weaken fiscal discipline. this is because, when the level of long - term interest rates is formulated, it is the market ’ s judgment that matters rather than a central bank ’ s intention. these arguments are hypothetical and can be regarded as simply the result of brain storming at this point. however, as the economy heads toward overcoming deflation, the effects will start to spread to long - term interest rates. at that point, the bank ’ s monetary policy, including the process through which it will eventually exit from the current easing policy, should not be decided by giving consideration to fiscal sustainability, but instead be decided solely from the standpoint of achieving the 2 percent price stability target. in that sense, i would like to reemphasize that the government ’ s commitment to medium - to long - term fiscal consolidation plays an important role in ensuring the ultimate success of qqe. iv. concluding remarks : economic activity in oita prefecture economic activity in oita prefecture is somewhat more sluggish than that in japan as a