many of the small and medium - sized financial institutions will find their business base taken over by the larger institutions. looking at the situation in europe and the united states, however, i feel that there is a tendency for financial institutions to become specialized in the present financial environment. while it is true that some financial institutions might seek to provide comprehensive financial services, they will not be able to survive the severe competition by merely expanding the scale and scope of their operations. those institutions will also have to develop areas or niches in which they can be competitive to secure the base for their existence. it is thus strongly expected that each financial institution will advance its know - how and expertise in its particular areas of strength so as to provide quality financial services. while market reform in japan will thus intensify competition among financial institutions, i am of the view that it will not directly cause the small and medium - sized financial institutions to lose their business bases. v. conclusion the reform of the financial markets involves numerous issues besides relaxation and removal of existing regulations and improvement of the institutional framework of the legal, tax, and accounting systems. review of public financing and adequate regulation and supervision, for example, are important considerations. the revision of the bank of japan law should also be perceived as part of the process of reform of the japanese financial markets and the financial system. with regard to the revision of the bank of japan law, a bill to amend the entire law was submitted to the diet in march following intense deliberations by the central bank study group, an advisory panel to the prime minister, and by the financial system research council, an advisory committee to the minister of finance. the bill aims at establishing a new central bank system founded on the two basic principles of independence and transparency. underlying the amendment proposal is the perception that in order to improve the efficacy and flexibility of monetary policy amid the changes occurring in the global environment surrounding the japanese financial markets, which i have discussed today, the legislation based on which the bank of japan operates must be appropriate for a central bank in the new age. i strongly hope that the bill will have a smooth passage following diet deliberations. at the same time, we at the bank of japan are determined to strengthen our efforts to reform the bank to ensure appropriate policy and operational management. in closing, i would like to ask for your continued understanding and cooperation.

that this will disappear in fiscal 2015. as a specific example, let us look at developments that occurred in the year - on - year rate of change in the cpi when the consumption tax was raised in april 1997 to 5 percent from 3 percent. it was plus 0. 5 percent in march 1997 prior to the tax hike, and after the hike went to around plus 2 percent for one year, from april 1997 to march 1998. the rate of increase was pushed up by about 1. 4 percent. however, in april 1998, one year after the tax hike, the rate of increase dropped to plus 0. 2 percent and the effect of the tax hike disappeared ( chart 13 ). needless to say, the bank aims at maintaining the 2 percent price stability target in a sustainable manner. therefore, in assessing the price situation in pursuing monetary policy, we believe that it would be appropriate to make assessments by excluding the shortterm variation factor on prices brought about by the consumption tax hike. the second thing is a negative impact on real income due to the consumption tax hike. given that consumption tax is tax revenue for the government, it is unavoidable that the consumption tax hike will have such a negative effect. the increase in the year - on - year rate of change in the cpi does not represent a rise in the value of goods and services themselves, but rather is the result of adding a tax that would be paid at the time of consumption to the prices of goods and services. the impact of the consumption tax hike should be discussed in a context that includes taxation, public finance, and the social security system, and it is necessary to clearly distinguish this from ordinary discussions on inflation. in sum, we believe that an increase in the cpi due to a consumption tax hike needs to be considered separately from the price increase as a trend. the bank aims at achieving the 2 percent price stability target on a trend basis that excludes the direct impact of the consumption tax hike. i should note that, for some fees for public services, the old tax rate of 5 percent will be applied as a transitional measure for a certain period after entering april. such a measure will be reflected in compiling the cpi. therefore, the year - on - year rate of change in the cpi excluding fresh food that will be pushed upward due to the consumption tax hike will remain at about 1. 7 percent in april and will become about 2 percent from may onward. the bank will also take this point into account in assessing