chart 2 - 1 ). in this regard, i would like to provide my personal views on the “ assessment of the effects of qqe ” on prices described in the aforementioned outlook report as an additional explanation. in my view, the actual cpi rise of “ plus 1 percentage point ” over the past two years exceeded the estimated value from the macroeconometric model because the actual degree of improvement in the output gap was better than the estimated value. nonetheless, the 2 percent target is yet to be achieved, mainly because of the rapid decline in crude oil prices, but another important factor is the slow pace of the rise in medium - to long - term inflation expectations, which have remained at around plus 0. 7 percentage point at most. regarding developments in medium - to long - term inflation expectations, a number of indicators have deteriorated since the summer of 2014. this deterioration seems to have been affected by the decline in the cpi caused by weakness in domestic demand and the decline in crude oil prices. in october 2014, there were growing concerns that a continuous fall in inflation expectations, partly driven by weak demand, could undermine positive developments in wage negotiations and firms ’ price - setting behavior. to prevent those concerns from materializing, the bank decided to expand qqe. this preemptive, prompt policy action, together with the stability in crude oil prices, helped halt the fall in inflation expectations, and thereafter inflation expectations have become largely constant. moreover, the recovery in domestic demand became gradually more evident toward the end of fiscal bis central bankers ’ speeches 2014, and the output gap is turning positive. for these reasons, i believe that the underlying trend in prices has been maintained. having said that, the year - on - year rate of increase in the cpi is currently about 0 percent, and the 2 percent target is still quite distant. the challenge for the bank over the next few years is whether medium - to long - term inflation expectations will begin to rise steadily. the outlook report stipulates that a further rise in inflation expectations is necessary to achieve the 2 percent target in a stable manner. this judgment is consistent with my repeated remarks over recent years. i personally hold the view that inflation expectations of economists and market participants are useful in evaluating the consistency of the bank ’ s outlook and its practicality, and they may also gradually affect the inflation expectations of households and firms. however, in ultimately assessing price stability, i consider that greater attention should be paid to households ’ price perceptions and their inflation

where there is a trade - off between price stability and financial system stability, the question over which one a central bank should place greater emphasis on when taking action may well become an issue of debate. one approach to that issue would be a policy framework based on a dictionary - like ordering. that is, as long as price stability – an objective of the highest priority – has been met, a central bank can pursue its other objectives. for example, in advanced economies in general, where prices have been maintained at low levels as a trend, financial system stability is sometimes viewed as more important than price stability, which is considered to have been achieved already. that would sound reasonable, considering that a large - scale formation of financial imbalances and their collapse, just like the one observed before and after the lehman shock, occurred when price stability had generally been maintained. on the other hand, in the case of japan, since deflation persisted for a prolonged period, one might take the view that, for the time being, a higher priority should be placed on price stability than financial system stability. the background to this view could include the fact that risk - taking activities of financial institutions have been limited, even in a low - interest rate environment, and that a buildup of financial imbalances has not been observed so far. i would not reject that way of thinking, but i am personally uncomfortable with accepting the dichotomy between monetary policy for price stability and macroprudential policy for financial system stability. that is because the dichotomy is seemingly easy to understand, but it is not always valid in every circumstance. of course, there are cases in which responses are possible under such a dichotomy. however, let us assume a situation in which the financial cycle is not sufficiently contained, leading to a feedback loop in which changes in the output gap and changes in the financial cycle reinforce each other. in that case, it inevitably becomes necessary to make use of not only macroprudential policy but also monetary policy, which has far - reaching effects. as in the case of the policy responses made after the bursting of the bubble economy in japan, if monetary policy measures are taken only after fluctuations in the financial cycle have become substantial, there is a risk that policy responses will become extremely difficult to implement at that point. therefore, what is desirable for a central bank is to give a certain consideration not only to the output gap but also to containing the financial cycle when pursuing monetary policy