implies that the monetary policy effect becomes more expansionary at the point close to the exit, the bank of japan's current policy is in line with the spirit inherent in the price level target policy. the role of fiscal policy let me conclude my remarks by referring to the role of fiscal policy to extricate japan from deflation. we observe that the government announced the fiscal policy target to achieve a primary budget deficit of zero in about ten years, and the automatic stabilizer effect dominated fiscal policy management after 2001 under the koizumi administration. the coordination between monetary and fiscal policy becomes more important, if the economy were to fall into deflationary equilibrium ( or the friedmanian equilibrium ), where the size of deflation rate is equal to the natural interest rate. on fiscal policy, we can identify the two different types ; namely, the ricardian and the non - ricardian. if the present value of government debt in the future becomes zero regardless of changes in the path of prices, it is classified as a ricardian policy. this implies that we should have some safety margin on the final numerical objective ( aside from the bias inherent in the price index ), given the likely negative macroeconomic shock to the lower natural interest rate of japan's economy over the future which is conducive to the zero bound on the nominal interest rate. this issue may be related to issues such as the discretion versus rule - based policymaking, or the risk management approach under uncertainty versus rule - based policymaking. it seems sensible to adopt the risk management approach under the knightian uncertainty ( greenspan [ 2004 ] ). chairman greenspan is critical of the " too inflexible " management of rule - based monetary policy. yet " activist " rule - based policymaking seems to possess sufficient flexibility in uncertain circumstances. for instance, the bayesian decision process under the risk management approach involves a learning process. learnability plays an important role in ruleoriented monetary policy to secure stability of the equilibrium. rule - based monetary policy has flexibility to implement a systematic revision of a contingent plan and prescribes the updating process in a " timeless manner, " while discretionary policy revises a contingency plan period by period. in any case, there may arise no conflict or inconsistency between the risk management approach and the provision of the price stability anchor to market participants. 4 / 5 as long as the fiscal rule aiming at reducing the primary budget deficit over the

toward the latter half of the projection period. again, citing the medians of the policy board members ’ forecasts, the inflation rate is expected to register 0. 7 percent in fiscal 2013, 1. 3 percent in fiscal 2014, and 1. 9 percent in fiscal 2015. b. looking to the future let me now elaborate on several points that deserve particular attention in terms of realizing the outlook for economic activity and prices that i just mentioned. i will first touch on issues related to domestic demand, followed by those concerning external demand. effects of consumption tax hike as far as domestic demand is concerned, the first is the effects of the consumption tax hike. from this april, the consumption tax will be raised from the current 5 percent to 8 percent. the tax hike will affect the economy through two channels. first, it will generate the frontloaded increase and subsequent decline in demand prior to and after the hike. second, it will lead to a decline in disposable income. as for the first channel, while the front - loaded increase in spending has already been observed in the areas of housing investment and spending on durable goods such as automobiles, the growth rates of the october – december quarter in 2013 and the january – march quarter in 2014 are expected to be quite high on the back of the front - loaded increase in consumer spending. by contrast, the growth rate for the april – june quarter in 2014 is likely to decline due to the subsequent drop in spending. that said, after entering the july – september quarter in 2014, the economy will likely return to a growth path above its potential without losing momentum toward economic recovery as the effects of the subsequent decline in spending will gradually ebb away, public investment will remain at a high level, and exports and business fixed investment are expected to increase moderately. having said all this, some people may be more cautious about the outlook for the economy because the tax hike will impose a negative impact on households ’ disposable incomes. in my view, such a negative effect will be mitigated due to the following reasons. first, various economic measures are being taken by the government. second, the tax hikes seem to have already been factored in substantially among households. and third, the rate hikes are expected to have the effect of alleviating households ’ future concerns over the fiscal condition and the social security system. in sum, the consumption tax hike will temporarily generate a swing in the economy ’ s growth rates and negatively affect disp