1990s. the year - on - year rate of change in the consumer price index ( cpi ) and short - term inflation expectations ( i. e., one year ahead ) were also around 2 percent until the early 1990s. from around 1992, after the collapse of the asset bubble, however, the rate of change in the cpi began to drop, turning negative from around 1999. the first half of this period coincided with a declining trend in real gdp growth rates. since these rates were mostly lower than potential gdp growth rates, which had been on a declining trend, the output gap deteriorated significantly, generating downward pressure on actual prices ( chart 4 ). short - term inflation expectations dropped in line with actual price performance : they turned negative around 1999 and subsequently fluctuated at about 0 percent before qqe. 3 one interesting feature of medium - to long - term inflation expectations is that they were unstable from the second half of the 1990s to 2012, with year - on - year movements ranging from around 0. 5 percent to 2 percent. it was evident that those inflation expectations were insufficient to raise the rate of change in the cpi and short - term inflation expectations. inflation expectations thus did not fully play anchoring role. the boj ’ s expression of price stability may be attributable to the instability in medium - to long - term inflation expectations. in 2006, the boj introduced the concept of the understanding of medium - to long - term price stability and described price stability as, in terms of the year - on - year rate of change in the cpi, approximately between 0 and 2 percent with the median of 1 percent. the boj ’ s description was clarified somewhat in 2009 to a positive range of 2 percent or lower, with a midpoint of around 1 percent, thereby eliminating the possibility of a 0 - percent price change. in 2012, the boj introduced the price stability goal in the medium to long term, describing it as a positive range of 2 percent or lower in terms of the year - on - year rate of change in the cpi, while setting the goal at 1 percent for the time being. despite these statements, it was not wholly clear whether the boj was ultimately pursing a 2 - percent level or a lower one. against this background, the boj adopted the 2 percent target and qqe in 2013 to restore medium - to long - term inflation expectations back to around 2 percent – the level that had been achieved over 20 years earlier. since

world output is projected to fall substantially to 2. 2 percent. this is significantly lower than the world growth of around 5 percent registered for four years in the mid - 2000s. the timing of the recovery in overseas economies depends on several prerequisites for recovery, and with regard to the u. s. economy the key questions are how adjustments in the housing market will progress and when the financial system will regain stability. i must admit that the timing of the recovery in the growth rate of overseas economies as a whole is highly uncertain, but given the current severe situation it seems appropriate to assume that the growth rate of overseas economies taken as a whole is likely to show a clear recovery only after the middle of 2009. as overseas economies are expected to continue to face a difficult situation, japan's economy, which recorded negative growth in the second and the third quarter of this year, is likely to continue to show increased sluggishness over the next several quarters. the primary reason why the bank takes this view is that the effects of developments in overseas economies and of the turmoil in global financial markets, which i mentioned earlier, have been steadily spreading to japan's economy. i will elaborate on this later. the price situation has also changed significantly. looking back to about a year ago, the year - on - year rate of change in the consumer price index ( cpi ) for all items excluding fresh food was around 0 percent, but then rose at a rapid pace, especially in petroleum products and food, due to the pass - through of higher commodity prices, and reached 2. 4 percent this summer. however, most recently it began to decline due to the drop in commodity prices. given recent developments in commodity prices, it is projected to fall at a rapid pace going forward. the major factor behind the drastic change in the trend of the cpi is changes in import costs. in addition, changes in aggregate supply and demand conditions and in the expected inflation rate also affect prices. aggregate supply and demand conditions will likely ease, as growth in real gdp is expected to continue to fall short of the potential growth rate for the next several quarters. although it depends on developments in prices of petroleum products and materials, the rate of change in the cpi may, for a brief period, turn negative in fiscal 2009. bearing in mind these developments in japan's economy, i will now move on to the factor that i regard as most important when discussing future developments in japan's economy and overseas economies – the impact