a high level of inflation in recent years, the bank should pay attention to the risk that possible changes in the inflation expectations of households and firms'price - setting behavior may generate second - round effects. as i have explained, the current situation requires the bank to carefully monitor both downside risks to economic growth and upside risks to inflation. furthermore, if the downside risks to the economy turn out to decrease, there is a risk that prolonging the period of accommodative financial conditions will lead to swings in economic activity and prices. the bank continues to carefully assess the future outlook for economic activity and prices, closely considering the likelihood of its projections as well as factors posing upside or downside risks, and will implement its policies in a flexible manner. moreover, since global financial markets are expected to remain unstable and there are various uncertainties in the outlook for economic activity and prices, it is essential for the bank to ensure the stability of the japanese financial markets. closing remarks as i have so far explained, the current state of japan's economy and the world economy pose an extremely difficult situation for the conduct of monetary policy. while monetary policy is expected to contribute to sustainable economic growth by creating a stable financial and economic environment, it cannot by itself increase the potential growth rate of the economy. a prerequisite for the economy to boost its growth potential is a rise in productivity, facilitated by innovation and a continual review of resource allocation. the kansai region is famous for its long history of pioneering entrepreneurship, as demonstrated by the fact that the world's first futures trading was carried out at the dojima rice exchange in osaka during the edo period ( 1603 - 1867 ). in the current environment, i look forward to seeing the region's originality and inventiveness add to the vigor of japan's economy. for our part, we will continue to support your efforts through our conduct of monetary policy. i would like to close my speech by mentioning an early episode in the relationship between the business community of the kansai region and the bank of japan. the bank was established in 1882 with capital of 10 million yen – equivalent to approximately 30 billion yen today. of the contribution to the bank's capital from the private sector, which accounted for half of the total, about 60 percent of the shareholders and 48 percent of the amount came from the kansai region. in other words, the business community of the kansai region contributed significantly to the establishment of japan's

as a commonly observed feature, households in japan and the euro area tend to perceive that the present price level represents an increase – except for a short period immediately after the global financial crisis – and they tend to expect higher price levels about one year ahead ( charts 9 and 10 ). moreover, those households commonly tend to expect to spend less in the near future. from these features, it may be said that households plan to reduce their spending about one year ahead because they expect a tighter budget as a result of expected higher prices. a different feature is evident with regard to the relationship between actual price performance and households ’ present price perception ( as well as their one - year - ahead price expectation ). in the euro area, households ’ present price perception and price expectation dis are roughly in line with actual price performance. by contrast, japanese households ’ present price perception ( except for a short period immediately after the global financial crisis ) and price expectation dis remained positive even when mild deflation prevailed from 2009 to mid - 2013. more recently, despite the rate of change in the core cpi having dropped to around 0 percent, the rising trend in the present price perception di has been firm and the relatively high level of price expectation di has been sustained. thus, japanese households ’ price perceptions and expectations constantly differ from the movements of official price statistics. on this front, it is known that japanese households ’ price perceptions and expectations are heavily affected by the price movements of daily necessities and gasoline, resulting in an upward bias. this could be interpreted as a sign of a strong defensive action against the anticipated tighter budget. if so, households may perceive a rate of actual inflation of much higher than 2 percent in the process of approaching the 2 percent target, and regard such price rises as unacceptable. thus, it is important for the boj to promote public understanding that its objective is to achieve a moderate price rise and a sustainable increase in household spending. additionally, households ’ tolerance for price rises needs to improve in accordance with a sustainable income rise. d. euro area firms ’ price expectations becoming comparable with those of japan with respect to firms ’ price expectations, the sales price expectation di for three months ahead is available from the boj ’ s tankan ( short - term economic survey of enterprises in japan ) and the european commission ’ s surveys ( chart 11 ). one interesting finding is that in japan, firms ’ sales price expectation di has fluctuated in negative territory since the first half of the 1990s, when