to be moderate until around the middle of fiscal 2010, since the pace of recovery in the global economy is likely to remain moderate and, in japan, pressure for adjusting employment and wages is likely to remain. going forward, as balance - sheet adjustments in the united states and europe make fair progress, in japan the improvements in the corporate sector originating from exports are likely to spill over to the household sector. therefore, in fiscal 2011, japan ’ s economic growth is likely to clearly accelerate. in terms of figures, the economic growth rate is projected to be around 1 percent for fiscal 2010 and around 2 percent for fiscal 2011. however, the bank is fully aware that the baseline scenario is accompanied by various uncertainties, and thus will continue to examine economic developments without having any prejudgment. i will now turn to price developments in japan. since i will discuss the so - called “ deflation issue ” in a moment, let me, for the time being, simply look at the figures. since 2008, consumer prices have been swinging widely due mainly to the fluctuations of prices of petroleum products and other commodities. the year - on - year rate of change in the consumer price index ( cpi ) excluding fresh food peaked at 2. 4 percent in the summer of 2008, followed a downward trend thereafter, and posted the largest decline on record, minus 2. 4 percent, in august 2009, mainly because of the base effect of the previous year ’ s surge in oil prices. subsequently, with the fading of the effects of the decline in the price of petroleum products, the rate of decline in the cpi in december moderated to a year - on - year rate of change of minus 1. 3 percent. looking ahead, the pace of the year - on - year decline in the cpi is expected to continue moderating due mainly to the gradual improvement of the supply and demand balance associated with the pick - up of the economy. however, given that the recovery started from a level of unprecedented weakness in demand and the pace of economic recovery going forward is expected to be moderate, downward pressure on prices is likely to remain for a considerable period. the policy board members ’ forecasts of the year - on - year change in the cpi released early this week is around minus 0. 5 percent for fiscal 2010 and around minus 0. 2 percent for fiscal 2011. iii. the thinking behind monetary policy let me now explain the thinking behind the bank ’ s conduct of monetary policy. earlier, i pointed out the

to 0. 1 percent at the end of 2008, given the outlook for economic activity and prices described earlier, the bank considers it necessary to maintain the extremely accommodative financial environment. at the beginning of december 2009, the bank introduced a new funds - supplying operation so as to further enhance easy monetary conditions. with this operation, the bank provides ample longer - term funds to the money market at an extremely low interest rate of 0. 1, which is equivalent to the policy rate, by employing the existing framework of funds - supplying operations against pooled collateral, which accept a wider range of collateral such as japanese government securities and corporate bonds. the bank recognizes that it is a critical challenge for japan ’ s economy to overcome deflation and return to a sustainable growth path with price stability. as the central bank, we will continue to make every effort to contribute to achieving this goal. iv. the “ deflation issue ” and achieving sustainable growth finally, i would like to refer to the so - called “ deflation issue. ” recently, in discussions of various economic phenomenon, they have increasingly been argued in association with deflation. therefore, it is all the more important to correctly understand the cause of deflation. since the 1990s, inflation has been falling worldwide. reasons for this include the success of central banks ’ monetary policies aimed at price stability and the substantial decline in costs as planned economies made the transition to the market. however, the arguments frequently heard today are not about this general decline in inflation but about why the inflation rate in japan is lower than in other advanced economies. in fact, japan ’ s inflation rate as measured by the cpi has been about 2 – 3 percentage points lower than that of other advanced economies even in the bubble period in the late 1980s. there are three possible reasons why inflation in japan has been low for a protracted period. first, rationalization of the distribution system and deregulation. while one rarely hears it mentioned today, from the 1980s to the mid - 1990s, high prices in japan, that is, the need to address the difference between domestic and foreign prices, were frequently identified as a major issue with regard to japan ’ s economy. rationalization of the distribution system and deregulation were implemented to address the issue. rationalization of the distribution system, together with globalization, led to an increase in low - priced imports. moreover, deregulation exerted downward pressure on prices by reducing margins in industries and of firms that were protected by