have recently started to increase fixed investment, which, according to our december tankan survey, will increase by about 8 1 / 2 percent this fiscal year. however, if we look at the saving - investment balance of the corporate sector, in april - september last year, saving continues to exceed investment by more than 15 trillion yen or about 6 1 / 2 percent of gdp, as shown in the left - hand panel of slide 7. in contrast, until the early 1990s corporate investment used to exceed corporate saving. there may be a variety of reasons why japanese firms keep saving. for instance, given the volatility of financial markets observed in recent times, firms may prefer to retain liquidity against the backdrop of perceived higher uncertainty in the economy. they may also try to pile up cash as a precaution due to lingering memories of financial crises in the past. however, it seems to me that the main reason behind the large saving surplus is the fact that firms ’ growth expectations have not sufficiently improved, as shown in the right - hand panel of slide 7. the subdued growth expectations, in turn, will restrain productivity growth in the future as a result of insufficient capital deepening. third, nominal wages have not risen fast enough. recently, nominal wages have been increasing by about 1 / 2 percent on a year - on - year basis. this is a big change from the situation a couple of years ago, when nominal wages were declining at a rate of about 1 1 / 2 percent. however, wage increases are still failing to keep up with inflation and remain well below the bank ’ s 2 percent inflation target. the sluggish increase in nominal wages is thought to reflect low productivity growth and the strong deflationary mindset, since, in the long run, nominal wage growth should equal productivity growth plus inflation. again, these developments support the view that sustained improvements in productivity are necessary to maintain the economic growth momentum. in this regard, the current spring wage negotiations, or “ shunto ” in japanese, are critically important. it is too early to tell the outcome at this stage and the picture is mixed. since faster wage increases are indispensable for steady consumption growth and higher inflation, we are now carefully monitoring how the negotiations unfold. recent monetary policy structural reforms have been steadily moving forward, but it will take time until such reforms boost the potential growth rate. in a country where the natural rate of interest has declined, the central bank has to implement monetary policy based on

first, it is assumed that the female labor participation rate in japan rises to the level observed in sweden. second, it is assumed that all healthy elderly will continue working irrespective of the retirement age. for instance, reflecting japan ’ s rising life expectancy, 60 percent of 80 to 84 year olds in japan say that they are healthy enough to go about their daily lives. we assume that all of these elderly continue to work. setting aside how realistic they are, these assumptions mean that the labor force can be expected to increase by about 1 / 2 percent per year. however, as shown in the slide, to achieve 2 percent gdp growth, labor productivity still needs to rise by about 1 1 / 2 percent per year. that being said, in the status quo scenario, labor input shrinks by almost one percent per year, so that labor productivity would have to grow by a hefty 3 percent to achieve the 2 percent gdp growth target. the productivity growth of 1 1 / 2 percent required in the optimistic scenario would still be high both from a historical and international perspective, but it may not be unachievable. economic theory suggests that the key drivers of growth are productivity catch - up and growth at the technological frontier. there is no doubt that a number of japanese manufacturers are at the bis central bankers ’ speeches global technology frontier, but there remains ample room for catch - up in many industries, particularly in the non - manufacturing sector. for example, it is often said that japanese firms, especially in the non - manufacturing sector, lag behind their foreign counterparts in the use of information technology, primarily due to underinvestment in this area and a shortage of related expertise. 1 as a result, japan ’ s productivity level is about 35 percent below that of the united states, which is often assumed to represent the world technology frontier ( slide 3 ). during their course of economic development, countries tend to enjoy rapid growth during the period of technological catch - up. japan had largely gone through this phase by the 1980s, so productivity growth decelerated thereafter, as seen in slide 1. that being said, as seen in the right panel of slide 3, in the period between 2000 and 2014 japan still enjoyed one of the highest productivity growth rates among the g7 countries, probably because there still remained some room for catch - up. in any case, this back - of - the - envelope calculation underscores the importance of labor productivity in raising the growth potential.