in oil prices. there have been a number of positive signs in this regard : first, various surveys indicate that inflation expectations have been edging up steadily over the last two years or so. second, annual spring wage negotiations appear to have started reflecting higher inflation expectations : base pay levels rose last year for the first time since the 1990s, and further accelerated this year. third, the bank ’ s economists recently confirmed, based on a rigorous quantitative analysis, that a “ regime - shift ” in trend inflation from zero to a meaningful positive level indeed occurred under qqe. 4 all these signs indicate that we are now overcoming the deflation that has long been afflicting our economy. we must maintain our current efforts in order to achieve the 2 percent inflation target at the earliest possible time, which we now expect to be around the first half of fiscal 2016. another interesting fact illustrated by the graph is that the recent unemployment rate in japan, about 3. 5 percent, is low even by japanese standards. with everything else being equal, the lower the unemployment rate, the better the economic welfare. however, that may not be the whole story. the fact that we have achieved this very low level of unemployment with only modest economic growth in the last two years indicates how heavily our adverse demography is weighing on the supply side of the economy. japan ’ s working - age population started to decline in the middle of the 1990s, and this decline is now gaining pace. this represents a considerable threat to potential growth, which has declined to an anemic 0. 5 percent, or possibly even lower. in order to restore a stronger supply side, we need to raise labor participation rates among the female and elderly population as well as labor productivity. as a matter of fact, the third arrow of abenomics is already working on these issues. although a central bank cannot directly change the potential growth rate, the bank of japan ’ s unprecedentedly accommodative monetary stimulus is certainly helping the reforms by dispelling the deflationary mindset. in professor tobin ’ s day, the policy problem was primarily related to a trade - off between the social costs of unemployment and those of inflation. the picture is different now. most major economies are in need of both higher inflation and more jobs. in this sense, there is no tradeoff. the new challenge has more to do with expanding our policy frontier than with choosing between trade - offs. this challenge is further complicated by the structural weakness of

labor supply and demand - related indicators, the unemployment rate has declined to around 3. 5 percent, and the active job openings - to - applicants ratio continues to improve as a trend, exceeding 1. 00. if the tightening trend continues in labor supply and demand conditions, this could help underpin consumption because of growing confidence regarding job security and expectations for wage increases. moreover, in the medium to long term, firms ’ efforts to boost productivity in response to labor shortages, such as investment aimed imputed rent is a concept for evaluating owner - occupied homes – which do not involve actual payments and receipts of rent – in terms of general market prices, on the assumption that such homes are rented and thus generating production and consumption of services similar to homes and rooms rented in the usual way. in international comparisons, this concept is very useful in compensating for the difference in housing costs derived from varying home ownership rates. however, such rent is not an actual expenditure from households ’ perspective. bis central bankers ’ speeches at labor saving, are likely to lead to a strengthening of japan ’ s growth potential. wage increases accompanying growth in labor productivity are expected to occur in the future. indicators of labor supply and demand conditions are effective in demonstrating firms ’ confidence about the future, and for this reason i will pay careful attention to monthly changes, including developments in job openings. the second point for attention is the price - setting behavior of firms. movements to pass the past increase in costs onto prices have been spreading steadily, as shown by the fact that in the june 2014 tankan the diffusion index ( di ) improved for output prices ( the proportion of firms responding that output prices “ rise ” minus the proportion of those responding that they “ fall ” ). in particular, the di for small nonmanufacturing firms moved into net “ rise ” territory for the first time since 1991. the di for input prices also continued to be in net “ rise ” territory, suggesting that a certain degree of potential pressure to raise output prices remains. whether such pressure will materialize as a rise in sales prices depends on economic developments. therefore, i will pay attention to whether the price - setting behavior of firms becomes even more active after overcoming the effects of the decline in demand following the front - loaded increase prior to the consumption tax hike. the third point for attention is developments in exports. the environment surrounding exports is expected to gradually improve, as the global economy – mainly advanced economies – recovers. on the other hand,