. jp / en / announcements / press / koen _ 2014 / ko140423a. htm bis central bankers ’ speeches long - term fiscal sustainability. in trying to escape from deflationary equilibrium, i believe that the monetary and fiscal policies that used to be conducted independently under an inflationary equilibrium, need to be pursued using a different approach. the joint statement issued by the bank and the government in january last year may have been playing an important role as a coordination device to enable the collective conduct of monetary and fiscal policies. this joint statement is an important foundation of abenomics. close cooperation between monetary and fiscal authorities can be observed not only in japan, but also in other areas where unconventional monetary policy has been deployed. 5 for instance, when the bank of england introduced its asset purchase facility, a letter from the chancellor made it clear that the british government would provide an indemnity to cover any losses arising from the facility. however, this close cooperation does not necessarily imply the loss of central bank independence for the following two reasons. first, a clear mandate of inflation targeting guarantees active monetary policy down the road. the zero lower bound on the nominal interest rate ties the hands of central bankers when it comes to deflation. as for inflation, central bankers can and should adjust policy rates flexibly if inflation is likely to stay above the stated target. second, governments well understand the importance of fiscal prudence. in the recent g20 communique, the respective governments made a firm commitment to maintaining fiscal sustainability. as the second arrow of abenomics, the japanese government has already made an important step forward in this respect by raising the consumption tax rate in april this year. presumably because of this commitment to fiscal sustainability, survey figures for long - run inflation forecasts in advanced economies have not increased to levels much above targeted inflation rates, although these figures are subject to considerable uncertainty, as i mentioned before. these forecasts for japan have not yet reached even 2 percent, although they do seem to be on a steady rising trend. iv. importance of raising potential growth since i have talked about the first and the second arrows of abenomics, let me touch upon the third arrow before concluding my presentation. as i mentioned, the decline in potential growth in japan has limited the range of the negative output gap. together with demand recovery, lower potential growth seems to be contributing to the recent rise in inflation through the tighter capacity constraint. in fact, the latest output gap is

that the biggest effect for canada of a more negative global growth scenario would be a steeper drop in commodity prices and, as in 2015, a significant depreciation of the canadian dollar. in contrast to these adverse global developments, the canadian economy is demonstrating resilience overall. the economy continues to create new jobs at a solid pace, the unemployment rate is near an all - time low, many companies are reporting an acute shortage of skilled workers, and wage growth is picking up noticeably in the past six months or so. the housing sector is clearly on the rebound, having digested the various housing policy changes put into place during 2016 – 18, and is still being fuelled by relatively high rates of immigration. consumption spending has held up relatively well on average, supported by the solid labour market and low interest rates, even as the savings rate has been edging higher. at the same time, energy - producing regions continue to struggle, as the full adjustment to the decline in oil prices back in 2015 is not yet complete, and transportation constraints are making the situation worse. you may recall that back in 2015 we said that the full adjustment would take up to five years — that even with lower interest rates and a lower dollar, as well as fiscal stimulus, 1 / 2 bis central bankers'speeches the adjustment to such a large shock takes a long time. it is painful for individuals, as it involves extended layoffs and possibly interprovincial migration, which is costly for all concerned. all this adds up to a complex outlook for canada, with considerable variation across regions and sectors. the strong labour market points to sources of growth such as information technology and other professional services, tourism, education, health care and financial services. some of this growth is being offset by negative effects coming through business investment and exports, particularly in manufacturing and the resource sector. on the whole, however, it appears that our economy is still operating close to capacity but probably with a modest amount of excess supply. governing council agreed that, all things considered, this excess supply is probably not pervasive. furthermore, our situation differs from many other countries in that inflation is at our 2 percent target today and projected to remain very close to target, despite the presence of modest excess supply. however, we acknowledge the downside risks, as set out in our alternative scenario in box 3. governing council also devoted some time to a discussion of the evolution of financial vulnerabilities in canada. we have been encouraged by developments