norm in japan's economy may be on the verge of dissipating. as japan's experience shows, rigidity in the prices of goods and services is stronger in economies with lower average rates of inflation. 3 however, even in the united states, where the underlying inflation rate is higher than in japan, the peak at 0 percent in the price change distribution is quite high ( chart 13 ). this shows that factors that make prices rigid are universal, regardless of the level of inflation. such factors may include menu costs ( i. e., costs associated with changing prices ), firms'strategic complementarity with competitors in setting prices, and adherence to reasonable standards with regard to pricing for customers. 4 increases in the prices of goods and services indicate that the advantages for firms when they raise prices to an appropriate level outweigh the disadvantages of such price increases. c. why it is necessary to move away from the zero norm economic sluggishness coupled with ongoing deflation or low inflation has often been referred to as the " japan disease. " japan's experience may indeed be the archetypical instance the following working paper on causes and implications of increased price rigidity during the deflationary period was the first to point this out in the context of the deflationary period in japan ( available only in japanese ) : watanabe, t. and watanabe, k., bank of japan working paper series, no. 16 - j - 2 ( february 2016 ). 4 the fact that firms'price - setting behavior often involves incentives to avoid raising prices as much as possible has long been explained using the concept of a kinked demand curve. the reason behind the kinked demand curve is usually thought to be a so - called strategic complementarity, or the strategy of firms vis - a - vis their competitors. okun, on the other hand, argues that the reason why firms are more averse to raising prices than lowering them is the fear of damaging the relationship of trust with customers as a result of raising prices. meanwhile, takashi negishi attributes kinked demand to asymmetry in the communication of information to customers. see okun, op. cit, ch. 4, and negishi, t., microeconomic foundations of keynesian macroeconomics, north - holland publishing co. ( 1979 ). of this situation, in that the economy saw increasing price rigidity under the trend of low inflation

bank is able to take sufficient time and consideration in reducing the size of the balance sheet. this is also desirable in terms of maintaining market stability. c. policy interest rate adjustments and issues regarding their implementation at the july 2024 mpm, the bank decided to raise its policy interest rate by around 0. 15 percentage points and encourage the uncollateralized overnight call rate to remain at around 0. 25 percent. at the meeting, i voted against the proposal to raise the policy interest rate. i will return to the reason why shortly. following this decision, the yen appreciated and stock prices fell. these developments further accelerated due to the deterioration in the u. s. employment situation that became apparent immediately thereafter ( chart 11 ). the july policy interest rate hike turned out to be one of the factors behind the sharp decline in japan's stock prices, reminiscent of black monday in october 1987. although there is already much debate as to the cause of the market turmoil, i personally believe that there was a discrepancy between the bank's actual view of the current economic situation and the market's perception of that view, and that this was at the root of the problem. the july policy decision implies that the general consensus at the bank at that point - - despite some minor disagreement, including my own - - was that japan's economic activity and prices had been developing in line with the bank's outlook, and that a slight reduction in monetary accommodation was appropriate in light of the upside risks to prices in the face of rising import prices. i opposed the policy interest rate hike from the standpoint that it was necessary to more carefully assess how the economic situation had improved with wage hikes becoming widespread, based on relevant data. my idea behind this was that japan's economy was still more vulnerable to downside risks, as underlying inflation had not yet reached 2 percent and inflation expectations were not anchored at 2 percent either. on the other hand, i also thought that, because the economic and price situation was steadily improving, it would not be too long before the bank needed to make adjustments to its policy interest rate, depending on future data. the market turmoil following the july decision suggests that the bank's consensus view had not necessarily been sufficiently understood by the market. the market had likely assumed that the bank had a more cautious view on economic conditions and that it would therefore proceed with policy interest rate hikes at a very slow pace. the market took the bank's july