continue to grow above its potential growth rate as a trend. bis central bankers ’ speeches challenges ahead to achieve the 2 percent to conclude, let me briefly touch on one of the challenges that lies ahead ; namely, how prices and wages will be set when we achieve 2 percent inflation in a stable manner. the bank is committed to continue with the qqe as long as it is necessary for maintaining the 2 percent price stability target in a stable manner. we are aiming at an economy and society in which actual inflation rates will be around 2 percent on average, and in which firms and households will behave on the assumption that prices will increase by about 2 percent. in the united states and europe, people ’ s medium - to long - term inflation expectations have been anchored at about 2 percent, and the setting of prices and wages based on these expectations has been firmly established. we would like to achieve this in japan as well. on this point, there have been encouraging developments in annual wage revisions for next fiscal year. we are paying close attention to how the wage decision framework based on the assumption of price rises will be created. concluding remarks the qqe, which i have talked about today, holds the huge challenge of raising inflation expectations through monetary policy. so far, with the policy exerting its intended effects, japan ’ s economy has been stepping toward achieving the 2 percent price stability target as expected. of course, we are only halfway there. the bank will steadily pursue the qqe to overcome as soon as possible the deflation that has continued for nearly 15 years. it will examine both upside and downside risks to economic activity and prices, and make adjustments if necessary to achieve the price stability target. thank you. bis central bankers ’ speeches

the other, real interest rates will be lowered, thereby generating the effect of powerfully stimulating economic activity. as the real economy improves due to such stimulus, the actual inflation rate will rise, which will lead to a further rise in inflation expectations : such a virtuous cycle can be expected to operate. is such a mechanism actually at work? so far, the qqe has been steadily exerting its intended effects. surveys on various economic entities and break - even inflation rates have suggested a rise in inflation expectations on the whole. as for nominal interest rates, in contrast with other advanced economies in which long - term interest rates have been rising in tandem with economic recovery, japan ’ s long - term interest rates have been hovering in a stable manner at an extremely low level of around 0. 6 percent. under such financial conditions, japan ’ s economy has continued to recover moderately in association with a virtuous cycle among production, income, and spending. on the price front, the year - on - year rate of change in the cpi excluding fresh food was negative when the qqe was introduced but has since improved, registering a positive figure of around 1¼ percent in the latest data. one year has passed since the introduction of the qqe, and we have reached the midpoint of “ about two years ” that we specified. so far, japan ’ s economy has been following the path toward achieving the 2 percent price stability target as expected, and we have become increasingly confident that the anticipated transmission mechanism of the qqe is actually working. in japan, two rounds of consumption tax hikes are scheduled. based on the experience of the economy going into recession when consumption tax was raised last time, in 1997, there are some concerns that the same might happen again. however, looking at the economic conditions of that time, the economic growth rate plunged immediately after the tax hike but subsequently showed signs of recovery. the economy seemed to have instead been affected substantially by a series of failures of japanese major financial institutions and by the asian currency crisis that took place just when the economy showed nascent recovery. by contrast, at present, japan ’ s financial system has been maintaining stability and emerging economies have become more resilient against negative shocks. the current conditions are quite different from those in 1997. taking these differences into account, the bank believes that, even assuming two consumption tax hikes, the virtuous cycle in the economy will not be interrupted and japan ’ s economy will