far have been mostly in line with the bank ’ s projection. the fact that the inflation rate has not declined too much but remained resilient despite the dissipating base effect suggests that the improvement in the output gap and the rise in inflation expectations have been working as trend inflationary pressure. looking ahead, the output gap and inflation expectations are expected to continue improving. since the dissipating base effect is expected to run its course, the year - on - year rate of increase in the cpi is expected to follow an uptrend again from the second half of this fiscal year and reach about 2 percent, that is, the price stability target, in or around fiscal 2015. ii. bank ’ s monetary policy management and japan ’ s growth potential in this way, japan ’ s economy has been on a path suggesting that the 2 percent price stability target will be achieved as expected. yet, we need to raise inflation rates and inflation expectations further toward 2 percent and thus we are only halfway there. the bank will bis central bankers ’ speeches continue with qqe, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. if the outlook changes due to the manifestation of risk factors and it is judged necessary for achieving the price stability target, the bank will make adjustments without hesitation. let me emphasize that our commitment is result - oriented. it means that the bank will continue with qqe to achieve the target, and the bank will make adjustments if necessary so that the target will be achieved. in closing, let me talk about japan ’ s growth potential. as i have mentioned earlier, japan ’ s potential growth rate is estimated to be around 0. 5 percent. japan ’ s potential growth rate in the late 1990s that is estimated to be about 2 percent has thereafter been declining gradually due to such factors as aging, the declining population, and the slowdown in capital stock accumulation during the period of protracted deflation. those facts are well recognized, and both government and private entities are making efforts to raise the potential growth rate. as a growth strategy to stimulate private investment, the government formulated the japan revitalization strategy and revised it in june. the bank strongly expects that the measure will be steadily carried out, and thereby firms will aggressively undertake initiatives. raising medium - to long - term economic growth potential is basically an issue of the supply side of the economy and thus monetary policy does not play a main

haruhiko kuroda : japan ’ s economy – responding to cautious views speech by mr haruhiko kuroda, governor of the bank of japan, at the economic club of new york, new york, 8 october september 2014. * * * introduction thank you for your kind introduction. i am greatly honored to have the opportunity today to speak at the economic club of new york. in april last year, the bank of japan introduced quantitative and qualitative monetary easing, dubbed qqe. one and a half years have passed since then, and qqe has been producing its intended effects. the year - on - year rate of change in the consumer price index, or the cpi, excluding volatile food, which was minus 0. 4 percent in april last year, has recently become around 1¼ percent excluding the direct effects of the consumption tax hike. japan ’ s economy has been on a path suggesting the 2 percent price stability target will be achieved as expected. meanwhile, cautious views concerning japan ’ s economy seem to be spreading, with the consecutive releases of somewhat weak economic indicators after the consumption tax hike in april. that being said, the bank ’ s assessment is that with the mechanism of economic recovery operating steadily, japan ’ s economy is expected to continue its recovery, weathering the temporary slowdown in economic growth due to the consumption tax hike. today, i will talk about the current situation of japan ’ s economy under qqe and future challenges. i. qqe and the recovery of japan ’ s economy the mechanism of qqe let me start by discussing briefly the mechanism of qqe. qqe consists of two pillars. one is a strong and clear commitment to achieve the price stability target of 2 percent at the earliest possible time and the other is a large - scale monetary easing to underpin the commitment. specifically, inflation expectations will be raised through a strong and clear commitment to achieve the price stability target and at the same time, downward pressure will be put on the entire yield curve through massive purchases of government bonds. as a result, real interest rates will decline, thereby stimulating private demand such as business fixed investment, private consumption, and housing investment. there will be upward pressure on prices if private demand increases and the output gap, in other words the slack of the economy as a whole, narrows. if actual inflation rates accelerate, expected inflation rates will rise and the aforementioned series of processes will be reinforced. the mechanism of qqe