items less fresh food ) is slightly negative due to the effects of the decline in energy prices, but that in the cpi ( all items less fresh food and energy ) has remained positive for 33 consecutive months since october 2013. the underlying trend in inflation has steadily improved since the introduction of qqe ( chart 5 ). however, the year - on - year rate of change in the cpi ( all items less fresh food and energy ), which reached more than 1 percent in the latter half of last year, saw a deceleration in its rate of increase recently, and was 0. 8 percent in june. this is due to the yen ’ s appreciation and the delay in the timing of improvement in inflation expectations. inflation expectations have weakened recently, although they appear to be rising on the whole from a somewhat longer - term perspective. not only market indicators but also survey results regarding inflation expectations have declined. the decline in inflation expectations seems to have been brought about – through an “ adaptive formation mechanism ” of inflation expectations – by the observed cpi having been at about 0 percent on a year - on - year basis for over a year due in part to the decline in energy prices. in countries such as the united states, people ’ s inflation expectations are anchored at the level around the target set by the central bank, and medium - to long - term inflation expectations are little affected by the decline in the observed cpi ; on the other hand, in japan, where deflation has dominated for a prolonged period of time, formation of inflation expectations tends to be strongly affected by the observed cpi. in addition, relatively weak developments in private consumption observed recently seem to affect firms ’ price - setting stance. putting off of price increases by some firms has been observed since the turn of the year, mainly in goods such as food products and durable consumer goods. looking ahead, however, the rate of increase in the observed inflation rate is expected to accelerate again. as explained earlier, the employment and income situation has been improving steadily and the unemployment rate is expected to decline further. against this background, as employee income increases and private consumption picks up, firms ’ pricesetting stance is expected to revert to raising prices. in addition, the “ stimulus package ” by the government is expected to further tighten the already tight labor market conditions, lead to an increase in wages, and stimulate household spending through the increase in employee income. many firms want to raise sale prices reflecting the increase in costs such as wage increases, as long

shirakawa, masaaki, “ uniqueness or similarity? – japan ’ s postbubble experience in monetary policy studies –, ” keynote address at the second ijcb fall conference hosted by the institute for monetary and economic studies, bank of japan, september 16, 2010 ( available at http : / / www. boj. or. jp / en / announcements / press / koen _ 2010 / ko1009c. htm ). bis central bankers ’ speeches abundant supply of labor and the expansion of the domestic market as a result of population increases, as well as the absence of rivals from less industrialized countries. the business model developed in this environment at the time was based on long - term, stable business relationships and put emphasis on mass production and the sale of low - priced, high - quality products for the domestic market and advanced economies. the model was suitable for the business environment during the high - speed growth era, but because it had been so successful, many japanese firms were slow to adapt the model when faced with the emergence of new markets and competitors in the 1990s. in the 2000s, partly because the effects of the burst of the bubble had gradually subsided, productivity growth stopped declining and japan ’ s productivity growth rate today in fact remains among the highest among advanced countries ( chart 5 ). however, the rapid aging of the population, at a pace that has no precedence around the world, started to significantly affect economic growth. specifically, the working - age population – which makes up the core group in production as well as consumption and the payment of taxes – peaked around 1995. it then started to decline, with the pace of decrease accelerating since the turn of the millennium ( chart 6 ). these trends reduce the growth in the labor force and weigh on economic growth from the supply side. at the same time, population aging also affects economic growth from the demand side. the shrinking of the working - age population, which accounts for the bulk of consumption, will decrease the size of the domestic market. moreover, consumption by the working - age generation is likely to be further constrained by the growing burden of supporting the elderly. of course, the growing number of elderly means that demand for such services as health care and nursing can be expected to rise. however, if the supply capacity to meet such growing demand remains constrained, domestic demand as a whole will likely be sluggish. another subtle consequence of demographic trends that cannot be ignored is that the aging of the electorate may