, it surely can be seen in economic activity and prices. the bank considers that the key to the overcoming of deflation lies in the extent to which a wide range of economic entities – such as firms and households – actually make full use of current accommodative financial conditions. with this in mind, i would next like to discuss the necessity to invigorate growth potential, or to raise the potential growth rate of the economy. iv. path toward overcoming deflation fluctuations in economic activity can be broken down into two components : one is the trend growth and the other is cyclical growth – that is, the fluctuation of economic activity around the trend growth path. the first half of my talk today mainly dealt with the issue of economic cycles, and monetary policy is aimed at ensuring price stability while leveling out such fluctuations. under the current zero interest rate environment, the cost of holding money is zero, so money is unlikely to circulate in the economy no matter how much a central bank injects. what is important at this juncture is to raise the velocity of money through the strengthening of growth potential. bis central bankers ’ speeches from this viewpoint, the output gap – which became as large as – 8 percent after the lehman shock – has shrunk to around – 2 percent recently ( chart 14 ). reflecting such developments in the economy, the year - on - year rate of change in the cpi ( all items less fresh food ) became as low as – 2. 4 percent in summer 2009, but overall it has been on an improving trend since then, as exemplified by the recent figure of around 0 percent. in contrast, the trend growth rate has been declining gradually. when corporate managers – those of smes in particular – say that they cannot feel there has been any economic recovery, what they are expressing is exactly in line with the situation that i just described ; namely, that the trend growth rate has been declining gradually. the average growth rate for the next decade or two is defined by the potential growth rate, which can be broken down into the rate of growth in the number of workers and that in the real gdp per worker – in other words, the labor productivity growth rate. the number of workers declined at a rate of – 0. 2 percent in the 2000s, and it is estimated that there will be an acceleration in the pace of decline to – 0. 6 percent in the 2010s and – 0. 8 percent in the 2020s, given

recently ( chart 7 ). the amount of corporate bonds issued in the april - june quarter registered the largest level since the lehman shock. in terms of funding costs, bank lending rates, in terms of the average contracted interest rates to businesses and households, have continued to decline and remain at historically low levels. c. favorable turn in expectations the second favorable turn is that in the public ’ s sentiment and expectations. bis central bankers ’ speeches first of all, consumer sentiment has been improving markedly ( chart 8 ). according to the consumer confidence survey, which is a questionnaire survey on consumer perception conducted by the cabinet office, while there is discontinuity due to the change in the survey method, the di has improved to a pre - lehman shock level. by generation, sentiment improved not only among the elderly, who hold large amounts of stocks and are likely to benefit from stock price rises, but also for young people. it appears that expectations for improvement in economic activity and income have started to emerge across a wide range of generations. on top of this, business sentiment has also been improving ( chart 9 ). the di for business conditions ( all industries, all enterprises ) in the june tankan survey improved by 6 percentage points from the march survey to reach minus 2. it has now reached a level as high as that registered in the december 2007 survey. moreover, the number of industries responding that business sentiment has improved has also increased, and now stands at 26 out of 31 industries. lastly, the public ’ s inflation expectations are rising. looking at various indicators related to businesses, the di for output prices in the june survey improved irrespective of firm size and category ( chart 10 ). the forecast di of large firms has now come close to zero. this has happened only twice in the last 30 years – once toward the end of the bubble period and the other just before the lehman shock, when international commodity prices surged. as far as indicators related to households are concerned, according to the opinion survey on the general public ’ s views and behavior, the share of respondents who expected that prices will go up one year from now exceeds 80 percent ( chart 11 ). a number of surveys collecting views among economists also indicate that the expected rate of inflation is rising. with regard to market indicators, break - even inflation – that is, the yield spread between fixed - rate coupon - bearing jgbs and inflation - indexed jgbs, and representative of the expected rate of inflation in