where the inflation rate does not rise easily has continued. the main reason for this is that the formation of inflation expectations is largely adaptive in japan. in other words, such expectations are susceptible to the observed inflation rate. this implies that it will take time for them to rise when the observed inflation rate is low. the adaptive formation of expectations reflects not only actual prices at the time but also people's past experiences, as well as norms that were cultivated through those experiences. studies have shown that the adaptive expectations formation therefore is relatively complex and sticky. this means that changing people's mindset and behavior based on the assumption that prices will not increase easily, which have become deeply entrenched under prolonged deflation, will take time. in addition, elastic labor supply and an enhancement of firms'labor productivity are positive for japan's economy as a whole but have constrained inflation ( chart 9 ). as i have mentioned, labor force participation, mainly of women and seniors, has accelerated since the mid - 2010s with labor shortage intensifying, and this is desirable for japan, which faces the problem of a declining population. many new workers have entered the labor market without a significant increase in wages, due partly to improvement in their working environment. moreover, firms have enhanced labor productivity, mainly through labor - saving and efficiency - improving investments. while these efforts are favorable in terms of raising productivity of the overall economy, they have absorbed upward pressure on costs, and thus prices have not increased easily. although it may take time, the situation where the inflation rate does not rise easily is likely to eventually head toward a resolution as economic activity improves. since the labor supply has a limitation, upward pressure on wages will increase if labor shortage continues. in addition, the fact that the adaptive formation of inflation expectations is entrenched implies the following : when people actually experience inflation, it likely will be incorporated in the assumption on which their mindset is based, suggesting that inflation expectations also are highly likely to rise. in short, it is appropriate for the bank to persistently maintain accommodative financial conditions under the current framework of monetary policy, with a view to achieving the price stability target of 2 percent. b. enhancement of the sustainability next, let me talk about the second point that underlies the assessment, which is policy conduct aimed at enhancing the sustainability of monetary easing, by taking yield curve control as an example. under yield curve control, even amid intensifying upward pressure on jgb yields

, mainly stemming from a rise in interest rates abroad and an increase in issuance of jgbs, an appropriate shape of the yield curve that provides accommodative financial conditions has been formed in a stable manner through flexible purchases of jgbs. it has been possible for the bank to control short - and long - term interest rates because it has conducted meticulous purchases of jgbs. the bank has made use as necessary of a powerful tool called " fixed - rate purchase operations, " through which it purchases an unlimited amount of jgbs at a certain yield level. stabilizing short - and long - term interest rates at extremely low levels under yield curve control inevitably brings about side effects on the functioning of jgb markets ( chart 10 ). in fact, many indicators suggest that the functioning has decreased since the introduction of yield curve control. in conducting yield curve control in a sustainable manner, it is important to strike an appropriate balance between maintaining market functioning and controlling interest rates. the bank believes that it can find more ways to achieve this balance because, although significant fluctuations in interest rates could lead to undesirable consequences, fluctuations within a certain range could have positive effects on the functioning of jgb markets without losing the effects of monetary easing. to this end, the bank made clear at the july 2018 mpm that interest rates might move upward and downward to some extent, mainly depending on developments in economic activity and prices. there is no change in this stance even though there have been times when the range of actual fluctuations in interest rates has become narrow again. there also is no change in the recognition that an excessive decline in super - long - term interest rates could have an impact of lowering the rates of return on insurance and pension products, for example. that said, with the economy hit by the impact of covid - 19, what is important now is to maintain the stability in the bond market and stabilize the entire yield curve at a low level, and it is necessary for the bank to bear this in mind in conducting yield curve control for the time being. c. nimble and effective responses lastly, i will talk about the third point, which is nimble and effective responses to counter changes in the situation. in order to persistently continue with monetary easing, it is important for the bank not only to ensure the sustainability but also to be nimble in making effective responses when needed, such as in the wake of a large shock to the real economy and financial