expectations ( that is, expectations are formed by adjusting them based on previous data ) and inflation expectations of firms and households as well as financial markets are likely to be low in a situation of persistent low inflation or deflation, as in japan. however, the year - on - year rate of change in the cpi ( all items less fresh food ) in japan is currently 0 percent due to ( 1 ) cost - push factors such as rises in fuel prices due to the recent weakening of the yen and in electricity charges, as well as ( 2 ) a halt in the decline in prices of tvs and it - related goods such as personal computers. in this situation, the year - on - year rate of change in the cpi ( all items less fresh food ) is expected to turn positive this summer from the current level of around 0 percent. if actual inflation remains in positive territory, inflation expectations of firms and households as well as financial markets might shift upward accordingly. some reports – such as the consumer confidence survey released by the cabinet office, the opinion survey on the general public ’ s views and behavior released by the bank, and surveys conducted on economists and market participants – already suggest a rise in inflation expectations, although it is hard to gauge the extent to which this is caused by the scheduled consumption tax rate hikes. the bank expects a mechanism of a feedback loop between inflation expectations and the actual inflation rate – in which a rise in inflation expectations causes a rise in actual inflation and vice versa – to operate and medium - term inflation expectations to rise accordingly. i. wages and prices in considering channels more in line with economic activity, a wage increase – as well as the narrowing of the output gap – is indispensable for achieving the 2 percent price stability target ( chart 12 ). at a meeting with business leaders in gunma prefecture on february 6, 2013, i stated that a significant wage increase of approximately 4 percent was consistent with achieving 2 percent inflation. however, considering the slowdown in the pace of increase in labor productivity in recent years, i came to realize that the wage increase needed might be lower – approximately 2 percent. the reason is that a wage increase consistent with achieving a certain inflation rate is higher when the pace of increase in labor productivity is high, and lower when the pace is low ( chart 13 ). as for the supply and demand conditions in the labor market consistent with achieving a wage increase of 2 percent, judging from the wage phillips curve – with the unemployment rate on the

jean - pierre roth : role of the central banks with respect to the financial market crisis summary of a speech by mr jean - pierre roth, chairman of the governing board of the swiss national bank and chairman of the board of directors of the bank for international settlements, at the forum suisse de politique internationale, geneva, 23 may 2008. the complete speech can be found in french on the swiss national banka€™s website ( www. snb. ch ). * * * the central banks have been working extremely hard to respond appropriately to the turmoil that has beset the financial markets in recent months. aimed at enhancing the resilience of the markets and safeguarding the stability of the financial system, the measures they have taken have been drastic and innovative at times. as this episode has also shown, a policy of preserving financial stability is not always easy to reconcile with monetary policy. the central banks must therefore tread carefully and avoid compromising their price stability objectives when intervening to defend financial stability. while money market conditions deteriorated over the past nine months, the swiss national bank put off interest rate hikes so as not to provoke a tightening of credit conditions in switzerland. effective action by banking supervisory authorities is key to ensuring long - term financial stability. however, the central banks also have a role to play in reinforcing the markets during times of need. once the current crisis is over, strengthening banking regulations will be absolutely necessary as a means of compelling banks to adopt a more circumspect approach.